TRADE, WAGE STAGNATION AND AGGREGATE DEMAND (PART I)

TRADE, WAGE STAGNATION AND AGGREGATE DEMAND (PART I)

My followers have read my complaints about how wage stagnation (since the 1970s) has adversely affected aggregate demand due to resulting lack of wherewithal at least 100 times, but I have on most occasions not bothered to go beyond such complaints in depth. These two economic realities are, of course, at least complementary if not joined at the hip, i.e., if I have less money in my pocket as a consumer, then I buy less, and if I buy less, I am contributing to lower wages for current employees of shop owners and others who, without sufficient demand, cannot afford to increase the wages of their employees and may even lay them off, thus contributing to further unemployment. Poverty begets poverty as the downward spiral picks up steam when members of the middle class are thrust into economic misery to join the poor, our fastest growing economic class (other than during a few bubbles) since the 1970s.

I usually attribute the stagnated family median wage beginning in the 1970s to Wall Street greed when their number began to hog all of the income provided by the economy, including the marginal productivity of their workers, but I let it go at that instead of enumerating its trade and policy antecedents which allow such a continuing parade of travesties. In this essay I hope to be more specific as to a few of the causes of our economic malaise, the chief of which is wage inequality. Aggregate demand will never pick up so long as we have wage inequality at its present level of intensity, and there is no good reason to believe that the current ravages of wage inequality on our economy will go away on their own without major changes in trade and labor policies. Wall Street (sans pitchforks) is unlikely to abandon its myopic search for yet greater profit and favor wage raises out of the goodness of its heart.

It appears that our present political crop of dependent campaign contribution recipients is unwilling to adopt policies that tamper with Wall Street’s myopic pursuit of gain irrespective of their effect upon millions of Americans. We are told that protectionism is bad and that general tariffs cannot be tolerated in an atmosphere of “free trade” and that partial loss of our sovereignty via trade agreements (such as in the proposed TPP) is good for American exports, labor etc.

This sounds eerily like the promises made in our earlier trade pacts written by Wall Street, like the one that makes us by far the world’s largest in trade deficits and thus net exporters of capital (while China and Germany lead the world in trade surpluses and net importers of capital). How can we pretend that our trade deals have been so successful when we are billions and billions of dollars in the red every year via trade deficits and when such imports additionally represent millions of lost jobs in this country (with tepid demand as a result) as Wall Street went for slave wage venues to enhance its bottom lines? Somehow, with the aid of corporate propaganda hacks and congressional toadies at the beck and call of Wall Street, we can, and all the while the middle class is evaporating and the poor are becoming even poorer before our very eyes as we, the mesmerized, continue to deny reality.

Thus in 2014, Pay Watch reports that CEOs of the 500 largest public companies received an average of $13.5 in total compensation, an increase of 15.6 percent from the previous year. The average compensation of these CEOs for 2014 grew to a ratio of 373 to one over the average pay of its workers, which means that on average a CEO earns in less than one day what one worker earns in a year. This situation, one in which pay, bonuses and stock options for CEOs continue to skyrocket while pay for most workers has stagnated, has to end. As rightly noted by the international president of the United Steelworkers, Leo W. Gerard: “This is an insulting and demoralizing situation for the working people of this country, and it has to change.” Amen, but it’s more than that. Those billions of dollars paid out to CEOs and other executives (which are limited in Germany by law but not here), had they been instead paid out to their workers suffering stagnated wages, would have added substantially to aggregate demand in our economy along with ancillary increases of employment in order to service such enhanced demand in the marketplace. Everyone would have won except the CEOs, who I think will not likely be seen in the food stamp line as a result.

Part II will discuss some hopeful signs for the future, Chinese tires and a FLSA rule change. Stay tuned.  GERALD    E