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From Hacker Pierson Winner Take All

After WW II,  Middle Class Americans came into prosperity through the power of labor unions and Federal policies that supported higher education, largely through the GI Bill, passed  in 1944. Twelve years later, when the Bill ended, 2.2 million GIs had taken advantage of the program and obtained a college education, while another 6.6 million had received some kind of job training benefit. A college benefit was also made available to Korean war veterans, though it was a bit less generous than that for WW II soldiers. These programs, coupled with New Deal policies favorable to the working class and labor unions,  helped generate the Middle Class out of the whole cloth of American workers, many of whom had struggled in poverty before the war during the Great Depression: it was an astonishing achievement the likes of which had never been seen before in American history: we created a new, wealthier Middle Class.  The birth of The New Deal under FDR seemed like a new era in political support for the American worker had arrived. The GI Bill was directly responsible for producing an educated American work force that was in the fire-when-ready-mode when the Russians launched Sputnik in 1957;  many of the children from this newly formed Middle Class, obtained doctorate degrees in a huge array of subjects and formed the foundation for the Golden Era of the American Research University, which lasted from 1958-1968. The Middle Class responded to this new challenge and proved that there was true genius among them, something we should never forget. It was during that period that science funding and Federal support for graduate programs, with fellowship and infrastructure support, emerged in a significant way for the first time in American history. This revolutionary period established the American Research University as among the premier research institutions in the world, until the neoliberals began to define a different agenda, characterized by disinvestment and the destruction of our education system, from K-12 to higher education and beyond. And let’s face it: they are winning this undeclared war.

Right now we are in a deep recession, one which has too many components to resolve itself quickly, but in essence, this recession has been building for the last 40 + years. The housing bubble merely represented the last log our economy could put on the fire before the long history of dismantling The New Deal came home to roost. Now, there is no quick fix for what ails us—we have to build a new economy from the ground up.  And we are not getting enough help to get the job done. Central to our economic problems is that the Middle Class has been deprived of wage increases that used to be strongly coupled to improvements in worker productivity. The accompanying graph (same as that in a previous posting) illustrates  income growth in 2008 dollars, from 1970 to 2008 for the bottom 90 percent of wage earners (light green line), compared to the top 1 percent (dark green line). Despite an increase in worker productivity (illustrated in the graph below) wages for the bottom 90 percent of Americans have seen no growth from 1970 through 2008 and as of 2006, wages and salaries for workers dropped to their lowest level as a percentage of the GDP since the government started keeping records in 1947.  The resulting stagnation in wage growth is a major reason why there is insufficient demand to pull our economy out of the serious recession we are in, particularly since we have become a far more of a consumer-based economy than we were immediately after WW II, when we had an economy based more on exports.  When worker productivity was not rewarded with parallel wage growth, Americans started borrowing, often using credit cards,  and Middle Class households discovered that a single wage-earner was no longer sufficient to maintain household expectations, one component of which was an affordable college education for their children. But, as Middle Class income stagnated and college costs skyrocketed,  it was necessary for their children to borrow in order to pay for college; today we have passed the $ 1 trillion mark for school loan debt. Excessive student debt was one of the major themes of the Occupy Wall Street (OWS) movement last year and this issue will be with us for a very long time. The jobs that are coming back now are low-paying jobs with no benefits—they are the jobs of the temp worker.

From NYT

Things changed beginning in the late 1970s and early 1980s, as the neoliberals gained momentum in turning back the wage increases that labor generated in the postwar period. The mortal enemy of capitalism is labor and the neoliberals set about to dramatically change the relationship between labor and business, to enhance short-term profits and improve the value of the company stock. The emphasis on the gold watch as a symbol of a quality CEO performance, was transformed into the golden parachute for the CEO and his select, executive companions. The failure of the public to denounce the leverage-buyout mania of the 1980s, helped accelerate inefficiencies in American manufacturing (because more focus and money was spent on acquisition than plant improvements) and gave birth to the private equity firms who make money from destroying the American manufacturing base.  Today, union membership in the private sector has fallen to about 7 percent, compared to the 35-40 percent during the peak period of union influence. These are levels that have not been seen since 1932. The decline in the unionized workforce was part of a deliberate strategy by the neoliberals to reduce the cost of labor and it worked, in part by creating a labor surplus, especially evident with today’s high unemployment levels but also generated by shipping jobs overseas as we sold manufacturing equipment and transferred jobs to India and China. We must also be aware of job loss through technological improvements and computerized functions which have displaced American workers. Just as one example, grocery stores used to have stock boys to make sure stock was ordered and displayed, but the computerized check-out and scanning system has eliminated their positions with more automated ordering. America is now the home of wealthy companies like Apple who design their products in America, but manufacture them in China or other Asian locations. How many jobs losses Mitt Romney presided over at Bain Capital has, to my knowledge, not been calculated, in part because the toxic version of capitalism that resides in America today doesn’t want anyone to know the answer. Perhaps during this election season we may see a number.

The figure to the right shows three different panels related to American wages and corporate profits. This article appeared in the New York Times in 2006, written by Stephen Greenhouse and David Leonhardt. The upper panel shows wage and salary growth, corrected for inflation from 1947 to 2006, at which point wages were at the lowest percentage of the GDP compared to any other time since the government started tracking this kind of data in 1947. The picture is slightly better when you look at overall compensation, adding benefits to the picture, but this is a bit misleading because it largely reflects the huge increase in health insurance costs, rather than something that went into the worker’s pockets. The lower graph of the upper panel shows that by 2006, corporate profits were at the highest level as a share of GDP since the 1960′s. The panel on the lower left shows wage and salary compensation for workers age 18 to 65 since 1974 expressed as a percent of income increase over the year before. This illustrates a very bumpy road of income growth with many negative periods, indicating a net loss of income. In contrast, the panel on the lower right shows productivity changes from previous years and illustrates only four years of negative change compared to 15 such years for wage growth. Clearly, the American worker has not experienced rewards for the increased productivity related to his/her work. According to economist Richard Wolff, the loss of compensation for increased productivity that began in the 1970′s was the first time in American history that wages did not track productivity.

Symbolically, the most prominent attack on labor was initiated under Ronald Reagan when he fired 13,000 air traffic controllers in 1981 and destroyed their union, the  Professional Air Traffic Controllers Organization (PATCO), which was eventually decertified. This cleared the way for business to fire employees who attempted to form unions with little or no protection from the weakened National Labor Board.  Everyone now recognizes that poor income levels among the Middle Class have served to push many of them into impoverished living conditions, forced them into foreclosure on their homes and worsening their debt load, which in turn has led to decreased demand in our consumer-based economy. We need to restore both the income level and confidence in the American worker to insure that his/her compensation includes a sensible plan for retirement (not a 401K, but a retirement fund contributed by employer and employee) that cannot be touched through corporate buyouts. Given the importance of labor unions and their historic role in generating improvements in wages and working conditions, it might seem plausible that we should wait around and do everything we can to give labor unions a chance to rebuild themselves and return to a more dominant role in wage negotiations, especially if we can rebuild the economy with a strong manufacturing base. But such a recovery is likely to take decades and we are so far down the road of financialization of our economy, that the prospects for achieving a short-term solution through this pathway seems very remote.

Yet, there’s a shorter, better way, one that we could implement almost overnight. The concept is referred to as Back to Full Employment. The idea of full employment came out of the Great Depression as a Keynesian concept. In those days, most economists thought that the purpose of macroeconomics was to steer economic policy and growth towards full employment. How times have changed: that concept of course was abandoned by the neoliberals who currently command our economic steering mechanisms. The first paper describing this strategy was by Polish economist Michal Kalecki, who wrote the article in the 1940s; The Monthly Review reprinted it a few years ago. In 1976 economist James Galbraith served on the staff of the House Banking Committee and worked to produce what, two years later became the Humphrey-Hawkins Full Employment and Balanced Growth Act. The bill had as its core, “full employment,” “balanced growth” and “reasonable price stability.” Included in the bill were amendments which instructed the Federal Reserve to report regularly to Congress about its progress on the full employment objective. Unfortunately, the Federal Reserve amendments are the only part of the bill that survived: every 6 months the head of the Federal Reserve sits before Congress and reports on the status of the economy; this is the only opportunity the Fed has to reveal its intentions in a public forum. The goal of the Humphrey-Hawkins Bill was to establish unemployment at 4 percent, with 3 percent inflation. Unfortunately, the Fed was run by Paul Volcker who followed a very strict policy of monetarism, driving the unemployment level to 11 percent in the early 1980s.

One of the most outspoken advocates of returning to the strategy of full employment is economist Robert Pollin who has just released a new book, “Back to Full Employment.“ You can also see him interviewed on the subject with Laura Flanders on GRITtv.org. In addition, the Boston Review in their January/February 2011 issue featured this topic with Pollin and several others, including James Galbraith. According to Pollin, right now you can make a case that the unemployment level is close to 20 percent, when you include those that have stopped looking for jobs and the underemployed. This is an unsustainable rate for any country, but in the past, our country has been at full employment, with unemployment levels at 4 percent or below; that’s were we should aim and not be satisfied until we get there. Full employment is the unwritten part of America’s social contract with its labor force. Pollin’s argument is that once you get to an unemployment level of 4 percent or below, the labor market acquires a new dynamic and wages are bargained upwards: in 1998 the unemployment rate fell below 3.9 percent and wages started to rise rapidly, particularly for the lower income workers. According to Pollin, we can get to that level without new legislation through the authority of the Federal Reserve, a component of which was recently decided when Ben Bernanke announced that the Fed would buy mortgages and mortgage-backed securities. By the way, the full employment strategy is good for business because demand goes up and business income can flourish.

The neoliberals have given us one bubble after another as a method for stimulating our economy and the evidence is all around us how poorly this strategy has worked. No rational person can imagine that experiencing  bubble after bubble is a sensible way to build an economy, yet that is precisely what the neoliberals have in store for us. We have only to ask when the next one will be? We should recognize that the Federal Reserve can grow employment without the need for new legislation. But the success of that spending depends on where the money goes. According to Pollin, for a million dollars spent on education, public or private, twenty-seven jobs are created; if you spend the same amount on the military, about eleven jobs are created. So success at job creation depends a lot on where you spend the money. This simple fact tells us that Obama could significantly enhance the jobs picture by transferring money out of the military, into education, just for starters; imagine how much more our society would benefit by boosting education as opposed to putting more money in the military, where job creation gives us much less bang for the buck. A lot of these changes can be achieved without reducing our military preparedness, but let’s face it, we have nearly as large a military budget as the rest of the world combined. Do we really need to dominate the world, especially if doing so is costing us a robust domestic economy? The enemies we face are the enemies we created. But there is a lot more to the concept of “Back to Full Employment.” Right now we are laying off a lot of teachers, nurses and firefighters because local governments are under severe budgetary constraints. We have supposedly ended the war in Iraq and in the process of ending it in Afghanistan: the cost of those two wars was $ 88 billion this year; we should be able to take that chunk of money and feed it into local budgets to maintain important employment at the state and local level. The total budget deficit for all state and local governments is about $100 billion. Transferring the $ 88 billion could cover a big part of this deficit, which must be solved in order for a robust economic recovery to take place. A very large part of Obama’s stimulus package was tax cuts, so Obama did not hire lots of people as FDR did in the 1930s. It’s quite a different stimulus package when it’s loaded with tax cuts rather than a jobs program. But then too we have the banks, who, right now, are “hoarding” $ 1.6 trillion in cash at the central bank, not in some other country’s bonds. According to Pollin, this $1.6 trillion is 10 percent of the American economy and this is the money that banks get for free—zero interest rate. The reason banks are not investing in the American economy right now is that they rate it as too much of a risk. But we know that the current crisis is because of a lack of demand in a consumer-based economy. So why not use that $1.6 trillion to feed investments into our economy by rebuilding our infrastructure and shoring up things like education which will repay us in the form of good job creation with benefits. As Pollin says “there’s nothing unhealthy about running a big fiscal deficit in a recession.” We suffer from amnesia by not remembering how we recovered from the Great Depression—it was government spending, as we fused emerging from the Depression with ending the Second World War. If you are a young person just entering the work force with or without a college degree, the situation is hopeless, though it is not the same in every field or specialty. There is a minimum reserve requirement for the Fed’s $1.6 trillion, but if you say that $ 600 billion should be enough, it still leaves $1 trillion dollars available for spending on programs to enhance our work force and insist on full employment. A combination of massive spending to create jobs and extension and a loan guarantee for small business loans (right now small businesses are being denied loans because the banks do not want to take the risk. Federal intervention to provide small business loan guarantees would go a long way towards solving this dilemma). The third thing we must do is stop the austerity program—it is helping no one but the neoliberals who are out of touch to say the least with the American worker.

We know that the back to full employment movement will not resonate with Republicans. They were opposed to it when it was first brought up during the Great Depression.  One can almost visualize Paul Ryan’s facial contortions if someone presented this plan as a new election ploy for the Republicans. But if they came on board for this plan, they just might get elected. Pollin has also had contact with the Obama administration and when he suggested the idea, they too were opposed to it. Both parties are currently to the right of the American public and things will stay that way until we recognize that politics is not a game you can play by simply electing better officials–it’s become a contact sport! Besides the better public officials rarely run for office anymore and if they do, they will eventually need large sums of money to fund there campaign and we have only one funding source left for the kind of money required to run a vigorous campaign—everyone needs help from Wall Street. But, full employment should at the very least become a subject of public discussion. And if both political parties are against it, how can it enter into the public arena and acquire speech? The answer is through the Occupy Wall Street movement.

Think Progress Image

It has only been a year since that group first occupied Zucotti Park and already they have given us the “99 percent” as a symbolic way of characterizing income inequality in America and what they first pointed out is only getting worse. Most of the jobs coming back do not provide a liveable wage. Before the OWS movement, income inequality was not a subject of discussion and you didn’t see much of it in the newspapers. Now it is a major topic, though you don’t hear much about it during this Presidential election, perhaps because both political parties endorse the “steady as she goes” policies practiced by the Obama administration since their first attempt at stimulating the economy; these policies, where politicians seem to be trapped between the obvious need for a Federal stimulus and the Republican criticism about the debt. These factors add up to the state of paralysis we see in Washington about creating good jobs. If Romney is elected, his plan is to make things worse, but even if Obama stays on for a second term, he will not respond on this issue until public demands force him into action—that much is already clear.   When the OWS movement first started, it generated issues that deeply resonated with most Americans who felt a kinship to the concepts and the movement. The OWS movement identified a core problem and an element of great distortion if not disintegration within our economy and society. The 1 percent have been identified as the central cause of many of our problems, though they command great influence throughout our political institutions. But while the OWS movement properly identified a grave problem in America, they did not offer a clear pathway out of our dilemma, except they denounced both political parties and did not endorse any political movement. The full employment option is one way that the OWS movement can propose a solution to the problems they so effectively demonstrated about the 1 percent who flourish, while the rest of the country is faced with a long period of substandard living with little hope for the future of their children and grandchildren. A national discussion of Full Employment is one way to approach this issue and the OWS movement naturally comes to mind.

RFM