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ECONOMIC GROWTH AND WAGE INEQUALITY

March 28, 2017

ECONOMIC GROWTH AND WAGE INEQUALITY

As those who read my blogs know, my main topic (other than politics of late) is the immense and continuing damage done to the loss of demand in our economy due to wage inequality, and since aggregate demand is what makes for economic growth and working people do not have the necessary withal to stoke demand, economic growth suffers due to more than 40 years of wage inequality where median wages as adjusted for inflation have been stagnant while the Dow has exploded. This post will treat a definition of terms in such connection, among other things.

The renowned and Nobel Prize-winning economist Joseph E. Stiglitz compares our economy to a pie. The more one sector of the economy takes as its slice of the pie the less is left for the rest of us unless we can make the pie bigger via economic growth and, ideally, do so by adoption of policies that fairly expand all sectors’ slices of the now bigger economic pie. It is not corporate managers, it is not Wall Street financial wizards with their credit derivatives and other esoteric securitization packages which recently brought the world to near ruin, it is not an up and down Dow that accounts for economic growth as sometimes touted by business schools and Wall Street – it is rather solely a function of demand, as noted in a book written ninety years ago by John Maynard Keynes, my all-time favorite economist. If there is inadequate demand for the goods and services the economy produces, the economy languishes, wages continue to stagnate, and tepid demand continues to be the order of the day, and all for lack of income equality.

In short, people with paycheck to paycheck income don’t go to market often or if they do, don’t buy much. They are victims of income inequality, and so are the merchants who depend upon such consumers to buy as well as those vendors and other wholesalers who supply the merchants as such deflationary forces combine to keep our economy on recession’s edge, not to mention the yet unknown effects of marketing changes such as Amazon’s depressing effects on sales by retail brick and mortar stores with new forms of merchandizing and automated delivery which may in time make shopping malls obsolete and abandoned on a massive scale what with their loss of anchor stores.

So how did this happen and what can we do about it? What policies can we adopt to either reverse of soften the shock of change? Let’s look at another day. After WW II, there was great pent-up demand for the goods and services we had deprived ourselves of while our factories churned out planes and tanks and ammunition for the war effort. Rationing of tires, meat, gas and sugar reduced demand during the war in the interests of the war effort and afterwards we were busy rebuilding Europe and Japan with our Marshall Plan and other such initiatives while also building houses, cars, trucks and even interstate highways back home. We were busy, wages were good due to unionization, demand for goods and services was in the stratosphere and there existed no wage inequality. We were near full employment during such period. Indeed the economy was expanding at such a pace that we began to have problems with inflation rather than the toxic effect of deflation greatly suffered during the Great Depression. Those can only be described as halcyon days.

During such postwar boom taxes were often assessed and paid at a 90 percent level for the rich, Wall Street banks were not permitted to engage in both commercial and investment banking due to Glass-Steagall, right to work and other such anti-labor atrocities were unknown, and most tellingly, the rate of increase in workers’ wages was greater than the proportional take of the rich and corporate class from the wealth and income our economy produced, the direct opposite of what has been happening since the 1970s, when the rich and corporate class began to  buy our politics, succeeded in doing so, slashed taxes, reduced regulatory control of banks and corporations, repealed Glass-Steagall, passed right to work laws and in general proceeded to destroy FDR’s New Deal initiatives which had brought us out of a major depression and world war into an era of unparalleled prosperity and a rapidly building middle class.

Look around; the results since Wall Street and libertarian interests have taken over our economy and even our government are plain for the eye to see. Reagan and Bush with their massive tax cuts for the rich and corporate class have resulted in our huge debt and the adoption of austerity economics, results which were and are neither smart nor desirable and wouldn’t have happened had we had fair taxation of those who can afford them and a watchful regulatory atmosphere in which Wall Street banks would not have brought the world to its knees and give us a recession second only to the Great Depression as happened after Bush’s first ever tax cut for the rich and corporate class during wartime. Trump’s solution? More tax cuts for the rich and corporate class! Economic growth? Forget it. Recession? Likely.

The culprits in this apparent desire to destroy America? Republicans and a few complicit Democrats along with nihilist government-hating libertarians such as the Kochs and Mercers. Now we have right to work laws in much of what used to be the industrial Midwest along with, of course, the southern states and their plantation mentality all vying and begging and paying bonuses to their corporate tormenters to come to their right to work states and hand out jobs to build cars and trucks at non-union right to work wage scales.

German and Japanese car companies don’t come to America to build factories and produce cars and trucks out of concern for Buy America sloganeering. I distinctly recall hearing a Toyota executive who said that such was not the reason; that Toyota came to America to build cars for the American market  because it was cheaper to build them here due to higher labor costs back in Japan. I was humiliated and horrified to learn that we are apparently en route to becoming the next cheap labor China and await the advent of Chinese car and truck executives to build their vehicles here due to lower labor costs.

Such experiences point up how wage inequality even when compared to international standards is our number one domestic problem in the USA. Saddled with debt, ALEC-approved state right to work laws and right wing political toadies wed to reelection via campaign contributions from their benefactors in the rich and corporate class, it seems we are on our way to Third World banana republic status with all the authoritarian control such classification suggests with a know-nothing president surrounded by fascist advisers (one of whom, Bannon, compares himself to Lenin).

What to do? Elect candidates to office who believe in democracy and who are more interested in seeing America survive and prosper than they are in their own reelection, all while boldly and loudly resisting fascism and other forms of authoritarian control from the likes of Trump and Bannon and others who would end what is left of our tattered democracy, our greatest collective asset held in common and one of the last few things left worth dying for. As for economic growth, to reiterate: Forget it.     GERALD      E

 

 

 

 

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