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WAGE INEQUALITY AND TRICKLEDOWN ECONOMICS

July 2, 2017

WAGE INEQUALITY AND TRICKLEDOWN ECONOMICS

I have written hundreds of posts about wage inequality and how I consider this to be our most pressing domestic issue of the day. The Republicans response is to ratchet up corporate welfare under the cover of trickledown economics, a system that never worked, isn’t working now and will never work, are sitting in a bar and Bill Gates walked in. One of the men said that on average everyone in the bar is now a billionaire.

The foregoing attempt at humor is designed to show how Republicans use statistical measurements to their political advantage. For instance, Republicans repeatedly use averages instead of means in determining wage scales to prove that workers are doing well, but the measurement has a blind spot. It averages in the compensation for a given year of a Walmart employee with the likes of Bill Gates, Warren Buffett, CEOs of Wall Street banks and other such superrich investors, and if this were the proper measure to determine wage equality, then indeed the “average” worker is doing well. However, this is not a proper measure of wage equality; it averages income and not people. Only means testing will work as a measure of wage equality, i.e., 50 percent above and 50 percent below of the wage earners tested. Otherwise, as in the bar, everyone is doing well, even though we now have an increased poverty count (and new billionaires) simultaneously at historic levels, a telling statistic in and of itself.

So the Dow is at historic highs? So both corporate profits and corporate cash in hand are at historic levels? So unemployment numbers are down? So therefore our economy is performing well, right? Wrong. None of these or other like observations tell us much about how the economy is performing and why? It’s because, like measurements of “average” income, the statistical measurement of how our economy is performing depends not upon Dow averages and corporate profits or even on lower unemployment factors as measures of the economy’s performance but rather on economic growth, and whether the Dow (which is a mere measure of Wall Street prognosticators’ views of stock values and/or expected dividends) is up or down and whether corporate profits are up and down are immaterial to economic growth. Indeed we have had instances in the past where the Dow advanced and corporate profits were up even with the economy in recession!

So if you have more people working than before that means that the increase in demand makes for improvement in economic performance, right? Not necessarily. Most of the formerly unemployed new workers are employed at minimum wage levels. Likewise, many of the formerly unemployed were on food stamps, rental assistance etc., and some were secretly working part time as underground employees with unscrupulous employers to beat the tax and social security raps, so the net positive effect on demand is minimal and, even if there were some marginal improvement in demand, not nearly enough to call for improvement in economic growth that the politicians predict but do nothing to make happen. It is not an employment by the numbers issue but rather how much such employees are paid that will determine whether all of America will prosper. Imagine what would happen to aggregate demand in the marketplace, for instance, if everyone working in America were to receive a 50 or even 25 percent increase in compensation for their services and not just overpaid moneychangers on Wall Street? Boom is not a four-letter word!

So just what does it take to make for robust economic growth which (independently of externalities) depends upon aggregate demand in the marketplace? It’s the same old problem and with the same old answer; a substantial raise in across the board wages for all Americans and in all wage classifications, not just minimum wages. Can’t afford it, whines Wall Street and a corporate America drowning in wealth? Then how do they explain a stratospheric Dow and historic profits and cash in hand while median wages adjusted for inflation have not moved in forty years, and how is it that we have the phenomenon of an increasing number of billionaires and increasing number of the poverty-stricken simultaneously. See any connection? I do. There is no fair sharing of the fruits of this economy.

The only way to come out of our current economic funk is to boost aggregate demand in the marketplace and the only way to do that is to put more money (wages and other forms of compensation) in the hands of the consuming public. Placing ever more money in the hands of the rich and corporate class does nothing for demand. How many yachts and Rolls Royces do they have room for  in the yards of their estates and at their piers?

Wages grew and even outgrew the corporate relative take of our economy’s income and wealth during some forty years of FDR’s New Deal. Worker productivity was shared. The middle class gained by leaps and bounds. Then during Reagan’s two terms we dismantled FDR’s postwar boom times and quickly went to deficits caused by his massive tax cuts and trickledown economics. Worker productivity was scammed from workers and went to employers’ bottom lines. Unions were busted. Demand plunged. We had a recession. Poverty shot up. Reagan started his first term with a slight deficit from Carter and left office with a deficit of 2.85 trillion. It is a mystery of the ages in view of such disasters that Republicans today want more of the same – massive tax cuts for the rich, continuing theft of worker productivity, trickledown. . . . Can’t we even agree on what we know made America great again?

Such adverse policies-in-waiting may be centered in the collective views of an Ayn Rand devotee, Speaker Ryan, the “destruction of the administrative state” by the Leninist adviser to the president (Bannon), or in the other world of the self-congratulatory Trump, Tweeter Extraordinaire. Whatever and whoever, such policies demonstrably support my view that, if pursued, will lead to recession in the short term and further damage to our economy in the medium to long term, and perhaps the straw that broke the camel’s back, as one economist suggested with the question of “How much more damage can this economy take before it collapses?”

I don’t think our economy will collapse but it is plain to me that our economy will continue to underperform and keep us within sight of recession (or even worse) until we stimulate both the economy and resulting economic growth by removing the blight of wage inequality from our midst, and the sooner the better, not only for the undercompensated and unemployed and underemployed  but for the rich and corporate class as well what with much greater demand for their goods and services and the opportunities they have to reinvest in America and its people. As I often write, I don’t mind having the rich and corporate class prosper so long as they take the rest of us along for the ride – so how about a win for everybody?   GERALD       E

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