Monday, June 06, 2011

Economists start facing reality

I just read a powerful post by Harvard economist Dani Rodrick who was floored by a paper that told him what all working people have known for years.  Productivity is way up, and pay is way down. Working people are not sharing in the gains to which they contribute.

"Labor productivity increased by 78 percent between 1980 and 2009, but the median compensation (including fringe benefits) of 35-44 year-old males with high school (and no college) education declined by 10 percent in real terms," Rodrick writes.

The paper Rodrick cites is "Addressing the Problem of Stagnant Wages" by MIT professors Frank Levy and Tom Kochan. They call for a new social compact to save the middle class. Their paper contains everything conservative Republicans have been militantly denying.

  • The link between productivity and compensation has been broken. The people earning the most are not necessarily productive, let alone most productive. 
  • Education and training are necessary for higher wages, but not sufficient.
  • Declining wages are one potential cause of divorce and single parent families. (Where is the religious right - hello? Can we get some help here?)
  • Since the 1970s the US has largely deregulated large corporations (little guys are still heavily regulated) - By deregulation I mean declining to enforce labor laws, denying federal increases to the minimum wage, and prioritizing shareholders over other stakeholders in companies.
A paragraph on the fourth page of this paper really burned in my skull: "Prior to these changes, American business practiced a managerial capitalism that shared the returns on investments in new goods and services among the firms' investors, science and engineering professionals, and other employees. Today American business emphasizes a form of financial capitalism that rewards financial innovations, financial transactions and restructuring. As a result of this shift, a disproportionate share of the gains have gone to those in the financial sector who engineered the shift and to the top executives in corporations who applied these principles in their firms."

These are shell games, not true productivity increases.  As corporations leveraged themselves, they leveraged the country. We have not really seen any benefits from it. America has succeeded in spite of, not because of, the laissez-faire market.

I encourage everyone to look at the first graph in the paper. So few economists pay attention to more than gross profits these days.  Let's pay respect to economists being intellectually honest.   A few of the comments on Rodrick's page were less than encouraging. One poster actually said that these workers deserved to earn less because all the productivity gains were coming from the executives. Sure.  Their golf scores are AMAZING.

Anyway, take a look at Dani Rodrick's blog.
If you have time, read the paper published March 17 by the Employment Policy Research Network - it's 30 pages long, but well worth the time.


Jim said...

This really confirms what most of us know and feel all too well.

Jeff Reznik said...

The GOP has steadily been transforming the society into one that values wealth over work for some time. This is part and parcel of their anti-union, anti-education outsourcing agenda, where they can offload labor costs to developing countries while maximizing profits by denying health care and other benefits, reducing their tax burden, and decreasing regulatory requirements - all while benefiting directly from the investment the rest of us make in roads and infrastructure, school taxes, and state university funding.

Pawlenty just said today that Obama is pushing a class warfare agenda. Funnily enough, Santorum accused Pawlenty of the same thing about a year ago. I guess this is going to be one of their campaign bullet points - try to get some traction with a catchphrase that is totally divorced from reality. Talk about bankrupt.

What I want to know is who are the terminally asleep who are buying that kind of rhetoric, when the wake of the GOP policies is such damage and destruction to the middle class? Is no one on the right noticing what is happening to their wages, their buying power, their home values, the cost of their education and health care? I don't think I've ever seen so much of the electorate so absolutely blinded to the real economic relations, even when the effects are so directly apparent in the condition of most of their lives. It's kind of surreal.

Fusion said...
This comment has been removed by the author.
Fusion said...

Class warfare is going on right now. We may as well acknowledge it and accept it. If we don't acknowledge it, we can't protect the middle class.

I hope that maybe people will start spreading the word and take organized action. Unions were the most developed institution for organized action on behalf of the middle class. With them out of the way, the ruling class can turn us into a banana republic.

They seem to really cling to using the judiciary as their secret weapon. That's why Obama has only manage to get about half of his judicial appointments to federal courts confirmed.

Jeff Reznik said...

Absolutely - it's been going on virtually forever, with perhaps no better practitioners of it now than the GOP. Maybe no better practitioners in history, as even during feudal times the masses really didn't have any illusions of upward mobility.

Regarding the judiciary, however, I think that most judicial opinions rarely reflect the real relations. They reflect more the cultural and societal relations.

For some reason that is still beyond me, most people, on the right at least, seem more easily diverted and led astray when it comes to the real relations than the cultural relations. Maybe that's just a function of how the religious right has constructed the issues for so long, or maybe it is deeper seated than that. But it appears that some consistency at least is needed when it comes to preserving the cultural relations, or else the right wing would really freak out and the very fabric of the culture could be threatened and jeopardized.

The GOP/right knows it can't have that, because the cultural relations are what preserve the system for them to manipulate the real relations. Without that basic underpinning and foundation, the entire society would be subject to collapse, and that would end the game for them pretty quickly.

At least it seems that way for now. It seemed that way to me regarding corporate power and 'tea party' ideology for a long time - so-called libertarian, laissez-faire, deregulatory, ultra-privatization, etc. Because all of those things would be so good for corporations, why did the corporate right position itself decidedly more to the left of that extreme for so many years?

It would seem that the money, privilege & power centers are very well aware that the fallout from instituting those kinds of radical financial & governmental policies -- while perhaps beneficial to them in the short term -- would create so much societal instability and economic turmoil that it would actually threaten the system in the long term.

Now, however -- with the Greenspan crew and GOP setting some of the stage for it with their Wall St. deregulation and laissez-faire -- the ultra radical right, represented now by folks like Dick Armey & his "freedomworks" org, Koch bros., etc. appear to have decided that now is the time to start pushing the libertarian agenda. Apparently they saw an opportunity with the Ron Paul 'movement' that got some minor, yet significant, traction in 08, so they went with it. And now as a result we are all in deep trouble with that kind of ideology floating around.

So in the same way, there might be parallels to the judiciary. Many of Obama's legalist opinions have quite frankly been extremely puzzling - Patriot Act, Guantanamo, seemingly lackadaisical DOJ - and the Dems all but laid down and gave Roberts and Alito a clear path to the bench. Perhaps that situation will be somewhat tempered now by Sotomayor, but unless Obama continues with more progressive choices, it remains to be seen whether the Courts will stay relatively more balanced, as from a non-lawyer perspective it seems that they generally have been, or start getting more right-wing extremist like the GOP has started doing with increased vigor and persistence regarding the economic relations.

Sorry so long - didn't really intend to stream of consciousness like that.

Josh said...

Hey Fusion! I'm the admin for "Institutions and Intuitions" me and another website are getting ready to integrate soon and I wondered if you could write either write some articles or currents news article every once and a while for us when we get up and running? Thanks let me know!