Almost everybody now agrees we have an acute problem (in the U.S. and in most advanced economies) around income inequality, wage stagnation, and the disappearance of the middle class. President Obama made these issues the centerpiece of yesterday’s State of the Union message. The other day, the President’s 2008 opponent, Mitt Romney, said he may run for President again because he wants to help the poor, the disadvantaged, workers, and the beleaguered middle class. Mitt was a “severe conservative” before he became a severe liberal. Go Mitt!
Here is the best single chart — heretofore called, “The Chart” — I’ve seen depicting the inequality and wage stagnation problem. (Thank you to my friend and colleague Kurt Lightfoot for sharing this).
The upper line tracks “productivity” in the U.S. economy since 1948. Productivity represents the combined effects of technology and harder/better work to (potentially) raise prosperity and the standard of living. The lower line shows the trend in the compensation of workers. The two lines tracked perfectly from the end of World War II to the mid 1970s. Since then, workers haven’t shared in the prosperity. You can see full analysis and discussion here.
So, what might Mitt do if he becomes President? Am afraid the things which need to be done are anathema to Mr. Romney’s party and even to many (a majority?) of Americans, at this point in time. Mitt and his party will support their usual remedies for greater prosperity (and for any other ailment): lower taxes on the rich and corporations, less regulation, and more “freedom” for all. Of course, not all of that is bad. But is there any evidence it works? Maybe giving lip service to wage stagnation is a step forward; but it can just as easily be a bait and switch.
Obama’s State of the Union address proposed other remedies, which could help move the lower line on The Chart a little higher, like a raise in the minimum wage and better access to education, but those won’t (and really can’t) by themselves get us back to the trend of shared prosperity.
If we want compensation to track closely again with productivity, It will take reviving organized labor (with reforms), tempering the effects of “free trade,” genuinely repairing an unfair tax system, and seriously containing health care costs (so that some of employers’ premium costs can move to the wage column).
Regarding “free trade,” the President last night championed the Trans Pacific Trade Agreement (some call it NAFTA on steroids). Those agreements, which Democrats supported as heartily as Republicans, have contributed greatly to the dismal trend in wages.
As this blog has voiced many times, we need a new paradigm and intellectual basis for “free trade” agreements, which doesn’t make them bobsled vehicles for race to the bottom. That said, this blog doesn’t champion “protectionism,” nor yearn for Smoot-Hawley II.