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November 27, 2014

 

WAGE INEQUALITY, AGGREGATE DEMAND AND KEYNESIANISM (PART II)

Why, if wage inequality is such a huge problem, are wages stagnant over most sectors of the economy and even falling in our manufacturing sector? What are we going to do about it? Before answering this question, let’s look at the recent history of manufacturing wages. Thus for 30 years, from 1976 to 2006, U.S. manufacturing workers were paid a median wage that was above the U.S. pay median, peaking in the mid-80s, but by 2013 the median manufacturing wage was 7.7 lower than the median U.S. wage for all public and private sector workers (per the Census Bureau’s survey data). The National Employment Law Project reports that “While foreign and domestic automakers have added 350,000 new jobs in the U.S. since 2009, nearly three fourths of all auto workers are now employed at parts plants, where workers are paid nearly 15 percent less on average than motor vehicle manufacturing workers overall.” The report of the law organization further noted that from 2003 to 2013, real wages for auto parts workers fell  nearly 14 percent, or three times faster than for all manufacturing workers and nine times faster than the drop for all occupations.

Noting finally that 14 percent of workers in the manufacturing sector are employed by temporary staffing agencies, earning 29 percent less on average than workers directly employed by auto parts manufacturers, the law organization found that “wage erosion throughout the manufacturing industry  has taken place even as state, local, and federal officials have spent billions in subsidies in recent years to attract manufacturing jobs.” More than 600,000 U.S. manufacturing workers earn less than $9.60 an hour, and 1.5 million – or one fourth of all manufacturing workers – make $11.91 or less.

Wage inequality is apparently not a problem for the rich and investment class, rentiers who make money off money in this day of historically high Dows rather than by the sweat of their brows, and one of the reasons why such people advocate suppression of wage increases is plain as day: reduction of wages equals less costs which equal higher profits. We can pass minimum wage laws and set floors for wages for government contractors by executive order, but wage inequality as typified by stagnant and falling wages will in general be with us until labor is in shorter supply, so what can we do to arrange for labor shortages? How can we finally do something constructive to end or at least ease wage inequality?

We can abandon austerity economics and embrace Keynesianism as policy. We can take an interest in running our own economy that we have ceded to the rich and corporate class. We have an enormous amount of work to be done on our infrastructure – roads, bridges, public buildings, national parks, airports, harbors, power grids, alternate power sources, new means of transportation around clogged traffic in and around cities etc. We could hire millions of the unemployed to do the work we desperately need to do around the country and at the same time create a healthy shortage of labor so that corporations will be forced to pay higher wages to their workers. Thus seen, creation of labor shortage is a policy initiative well worth undertaking and it’s our economy, so let’s undertake it.

It is well worth undertaking because such an initiative kills several birds with one stone. Among others, it  (1) solves the problem of the chronically unemployed; (2) solves or at least reduces the problem of wage inequality since current employers would have to raise wages to retain their workforce; (3) gives us a newer and safer infrastructure for our money; and (4) reestablishes the right of the people to run their own economy relatively free of current policy which caters to narrow Wall Street profit objectives.

The ultimate result of such a Keynesian approach, of course, is that hundreds of billions of new dollars would be in the pockets of people who would spend such additional monies in our domestic economy and that such a resulting boom in  aggregate demand would bring about large increases in ancillary employment and openings of new businesses, all of which translates into much greater revenues to government with which to  pay down debt, fund important government initiatives etc. As the old saw goes, “It takes money to make money.” It also takes money to correct ongoing economic injustice, injustice we have suffered for too long at the hands of one of the participants in OUR market, to wit: Wall Street and its corporate/investment handmaidens. It is time for us to paddle our own canoe.

Presently corporate America lavishes salaries and bonuses on its executives while refusing to pay living wages to its workers, our infrastructure is crumbling, profits are swallowed up in executive salaries and stock options and bonuses, invested in overseas production facilities or hidden away in Luxembourg or other such tax avoiding and/or evading venues all the while Americans are dying due to crumbling bridges (see the recent debacle where several Americans were killed when a bridge in Minnesota collapsed). We are literally dying to maintain corporate profits at obscene levels. Proof?  Witness the Dow, now at historic highs, while family median wages are stagnant or even declining. It doesn’t have to be this way.

When Keynesian tactics are urged (as here) for policy, Wall Street and its corporate/banking/investment  culture crank up their propaganda machines to talk about how we cannot afford such “socialistic” means of stimulating our economy and raising wages, that such are the exclusive province of “private enterprise,” etc. Apparently we who own this economy are to wait until one of its participants (Wall Street) is prepared to go forward or in all events to seek its O.K. before proceeding to paddle our own canoe.  My response? How many bridges in Minnesota are being fixed by tax-evading Swiss bank accounts? Are we now supposed to die so that someone else’s profit schemes can remain intact? How much longer can ordinary Americans remain out of bankruptcy and food stamp applications with wage inequality before some of the huge profits currently being made by corporate America are shared with those who helped produce them, either as producers or consumers? How much longer can we endure this dichotomy of economies, where the rich and investment class live in one economy and the rest of us live in another, where the Dow is virtually meaningless in that it measures the success of the corporate/investment class and not that of the malaise-ridden economy in which we live?

In discussing “socialism” and “what we can afford,” I first note that we already have socialism, that is, socialism for the rich whose corporate welfare benefits and tax breaks dwarf welfare payments made to the poor and disabled. I also note that Wall Street had no complaints when ordinary Americans were required to fund bailouts for their banks’ crapshoots that brought on the Great Recession. I finally note that Wall Street was not opposed to the Fed’s FOUR TRILLION DOLLAR purchase of treasuries and Wall Street’s mortgage securities (at par!) just recently concluded, purchases that made bond traders happy and which propped up the stock market to historic highs (in the name of fighting unemployment and inflation to make such huge corporate welfare payments politically palatable). It seems that the rich and investment class is quite selective in defining welfare.

Keynesianism is not welfare. We get a lot for our money, like much improved infrastructure, better wages for our working class, millions more employed, booming aggregate demand, fiscal stability of government etc. as opposed to what we are getting now – starvation wages, crumbling infrastructure, huge welfare payments to the rich/investment/corporate class while corporate workers face bankruptcy and food stamp status. Keynesianism gives us an opportunity to get something for our money and put people to work; the present flawed austerity system does not. Let’s vote for America and all our people.  GERALD    E

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2 Comments
  1. Once again, Gerald, you are able to take complex problems (ie economy) and break them down into a vernacular I can get my head around! Thank you!!! However, it seems there are so many, many people of intelligence and ability to reason that cannot (or will not) admit to the two class economy we have today. Why? Is it possible to help these people understand? Many of my conservative friends and family members are just as convinced of the gospel of trickle down and “free enterprise” as I am of a more socialistic democratic society and economy. Naturally I get labeled with the usual names: crazy, communist, stupid, out of touch, etc. As a theologian I am reminded (or try to stay aware myself) that all hermeneutics is interpretation and NOT absolute. Absolutism has its down side as you know in all its ugly and corrupt forms. Therefore, I tire easily trying to have a rational and respectful discussion with good people who are absolutely sure of their ideology, economic and otherwise.

    • Those who label you crazy and communist are not willing to discuss the underlying issues that are up for discussion. In isolated context, whether you are crazy or a communist has nothing to do with whether Wall Street is plundering us hoi polloi. Let’s say you are a communist. So what? What does that have to do with solution of ongoing economic injustices? Nada! I call this diversionary chatter. The corporate and investment class try to keep the agenda under control by framing the issues to suit their desired outcome, and it is our task to reframe the issue(s). As an example, those who have bought the political class do not want to talk about that in the daylight, so they go after the messengers (you and me) and talk about communism (latter day McCarthyism) instead of bribing politicians. We must reframe the issues under consideration in order to get to a discussion of, for instance, bribery. Thus one of the sore points in my craw is the admitted bribery of Chinese officials in return for lucrative banking contracts by JP Morgan Chase Bank (the biggest on Wall Street). That was a felony in clear contravention of the Foreign Corrupt Practices Act and nobody was even indicted much less go to jail. The bank instead paid a fine. GRRRR! If you or I commit a felony (like raping a woman at high noon on the public square) with 500 witnesses, I can guarantee you that we would do hard time and lots of it. How come bankers can commit felonies and just pay fines (which, by the way, you and I help pay for since they take their fines for deductions and you and I have to make up for what they DON’T pay). That’s another GRRRR! The deck is stacked; the deal is rigged. Elizabeth Warren is 100 percent correct. The problem is not isolated; it is systemic. We therefore need to sanitize the system, and that means that we need new politicians in power who will break out the mops and buckets of Mr. Clean. Where are they? Jerry

      Gerald E. Read my blog at: elderblogger.wordpress.com

      On Fri, Nov 28, 2014 at 12:53 PM, elderblogger wrote:

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