Tag Archives: wage stagnation

Channeling Elizabeth Warren: What an Uncensored Liz Might Say About the Hillary Clinton Announcement

What was Elizabeth Warren thinking as Hillary Clinton formally announced her candidacy for President?   What would Liz be saying if she was not a realistic and committed Democrat?  Let’s channel the more aggressive, less practical side of the Massachusetts Senator, imagining what she might tweet.  On the Sunday morning talk shows, Liz says she too is “ready for Hillary.”   Perhaps she really is!  The line that stood out most from Hillary’s announcement yesterday was: “the deck is still stacked in favor of those at the top.” That’s vintage Warren.

Nonetheless, here are five imaginary, edgy Warren tweets that were never sent. And won’t be.

1. Over more than two decades, the Clintons advanced and accelerated fundamental policies which have helped America edge closer to oligarchy than it’s been in more than a 100 years.

[Ed. Note: This process began well before the Clintons arrived on the scene. The U.S. is perhaps at a quarter to twelve on that clock; not yet mid night].

2. Bill and Hillary drank a lot of the post 1970s De-regulation Kool-Aid, some of which was sound and needed; but overall (in its zealotry) harmed a lot of average people.

[Ed.Note: The post 1970s De-regulation Movement, reversed a lot of Progressive era and New Deal policies aimed at (harmful) concentrations of wealth and power and protections for consumers and labor. While some deregulation fostered more competition, a good (rhetorical question) looms: “Is there a single example of consumer prices going down and market competition increasing after deregulation of a U.S. industry?”]

3. Speaking of deregulation, the Clintons were totally on board to gut decades old financial regulations in 1999 which had protected average people’s money from being squandered in risky big bank investments.

[Ed. Note: In 1999, Democrats led by Bill Clinton and Republicans by Senator Phil Gramm, repealed the Glass-Steagall Act, which had (among other things), separated commercial and investment banking. That enabled big banks to use the money of average people and (barely) middle class home buyers to make risky investments. The ensuing crash decimated the wealth in the middle.  Repeal of Glass-Steagall was of course not the only reason for the crash, but it played a big part].

4. The Clintons have been gung-ho NAFTA style free traders, and brought a lot of other Democrats with them. The form of free trade they supported helped decimate the wages and benefits of U.S. workers.

[Ed. Note: For U.S. multinational companies, in particular, NAFTA has been a way to keep a lid on worker wages and benefits, and avoid thorny regulations (which presumably restrain trade).  This is not your father’s, nor David Ricardo and Adam Smith, Classic Free Trade. There is evidence that trade pacts help nations avoid conflict. That’s good. But that has costs which need to be borne by all of society, not just average people].

5. Clintonian Welfare Reform left many poor people with no work or low wage, subsistence jobs. Democrats’ support for “welfare reform” helped feed Republican ideology around “free-loading” and Romney’s 47 percent theory.

[Ed. Note: New Deal and Great Society welfare (public assistance) needed to be reformed. But Clinton policies were long on getting people off welfare rolls (and maybe into work), and short on providing the right training (or apprenticeships) to find decent paying jobs. These are the main criticisms of Clinton welfare reform.  Arguments that trumpet the policy’s success are represented here].

Channeling Elizabeth Warren’s aggressive side as it might view the Clinton presidential candidacy was a revelation.  It was soon clear that most of the words pouring out didn’t do a very good job of separating Hillary from Bill. Is that sexist?  And unfair?  Perhaps both,  though surely not intentionally.

The problem is that we don’t know very much about Hillary’s position on wage stagnation, inequality, financial sector regulation, free trade, the condition of the middle class, and many  other core and defining financial and economic issues of our time.

That’s partly because Hillary dealt mostly in foreign affairs during the years these issues have been front and center.  But she has also avoided saying much about them, beyond high level generalities.  She won’t be able to continue doing that much longer.

If she watched the video announcing Hillary’s presidential run, am sure that Warren appreciated her saying “the deck is still stacked in favor of those at the top.”  That is, indeed, vintage Warren!   But it still falls in the platitudinous category.  It will be fascinating to see how the cross word puzzle is filled-in over the next twenty months.

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OK, So We All Agree Inequality Has Gotten Out of Hand: What Next?

No one said anything last night about black smith wages

No one said anything last night about black smith wages

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).

Workers’ Hourly Compensation Versus Productivity

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.

“Why Turn Health Care System Topsy Turvy and Raise Costs for All, Just to Help 15% of the People?”

critterThe question in the blog post title is now being asked even by Obamacare/ACA supporters, including some Democrats, like the erstwhile Senator Charles Schumer, from New York, who thinks health care reform distracted his party from taking care of the middle class.

But, the premises of the question are all wrong.

In the same vein, Republican Mike Huckabee was even more to the point than Schumer about the “irrelevance of health care reform” to average Americans. Here is what Huckabee, soon to be a presidential candidate, had to say in an interview:

Q: What about ObamaCare? Is reaching those 30 million uninsured people a priority?

HUCKABEE: It ought to be a priority. But the priority should have been to deal with the 15% of people who didn’t have insurance rather than disrupt the system for the 85% who did and who were largely satisfied with insurance…..

It still matters what the facts are, even if that’s become a quaint concept.  Let’s start with the “15% uninsured” fact-let that’s implanted in Huckabee’s and everyone else’s brain. It’s very misleading. It persists because the true picture is harder to explain.

The “15% percent uninsured”  figure is a snapshot, taken at a point in time.  Over a materially longer period – more than six months, to one, two, or ten years – anywhere from 25% to 50% of Americans experience a significant spell without individual or family coverage.  That’s very large.  It’s a lot more than just “the poor.”

An even higher number of people are in perpetual fear of losing health care coverage, which keeps them in dead end jobs and contributes to  the “dead wood” we complain about in the next cubicle.    None of that may be disturbing to Huckabee or Schumer, who probably have never had to think about going without health insurance for their families, even for a few months; and haven’t worked in a cubicle for decades.

The much better count of how many people have lacked health insurance in the U.S. is documented here and here, by the non partisan Congressional Budget Office and by career analysts at the U.S. Treasury Department.

What about Mr. Huckabee’s point that Obamacare turns the health care system upside down?   Many would say, “If only it were so.”  The ACA went way out of its way to preserve the main pillars of the old health care system – private insurers, pharmaceutical companies, hospitals, and other private providers in a $3 trillion dollar system,  which leads the world in cost per client, but with worse health outcomes.  Whether you like it or not, ACA falls well short of turning the health care system upside down.

As for recent U.S. health care costs, the ACA munificently provides an alibi for anyone who raises insurance premium or shifts higher costs onto workers. Insurance companies, hospitals, and employers have been doing that for decades at rates that far outstrip general inflation and growth in worker wages or middle class income.

So, yes, health care costs have been rising, but since the ACA passed, health care inflation has actually slowed down. That is more likely due to the great recession than to ACA; but it’s a lie that health care costs have soared since the passage of ACA.

Let’s close the loop regarding Schumer’s Monday morning quarter-backing about the ACA and the middle class,  Soaring premium costs over decades have been a big factor in wage stagnation and middle class economic woes.  It’s elementary that the more a business pays for worker health insurance, especially when premium costs outpace profits, the less it can pay in wages. At the time Democrats were in control of Congress in 2010, “health insurance for all,” at affordable prices, was the single most effective and practical way of helping American workers and the middle class.

Perhaps Senator Schumer thinks Congress could have more easily attacked the other causes of middle class doldrums?  It would have been a snap to: (1) reverse NAFTA (and maybe block TPTA negotiations, while they were at it); (2) overturn “right to work” laws in about 25 states, (3) restore marginal tax rates to 90% for high income earners; and (4) put the brakes on technological advances which replace workers and lower their value. Maybe they could have done that in six days and rested on the seventh?

I will give Schumer this: The President and supporters of ACA did a horrible job explaining what they were trying to do; while conservatives have been spectacularly effective persuading a lot of middle Americans and small business folks that ACA is the bane of their existence.

Inequality, Government Policies, and Yogi Berra Wisdom

SONY DSC

CCNY — Where I Went to School. Part of CUNY

The story which prompts today’s post is a study reported in the Economist Magazine.  It examines “inequality” in countries, before and after taxes and transfer payments. The study originated at the City University of New York (CUNY).   (Unnecessary Disclosure: I received my undergraduate degree from CUNY, actually its flagship campus, CCNY).

The story has some implications for the elevation of inequality as a public issue by President Obama in his State of the Union speech last night, and to earlier statements, by the President, the Pope, and many others, along these lines. Here is the Economist story: http://www.economist.com/blogs/democracyinamerica/2013/11/inequality-america 

As the story details, the CUNY professors first measure income inequality after the government has taxed its citizens and used some of the money for “welfare” and “safety net” programs.  They measure the inequality by computing a “Gini Ratio.”   The higher that number (between 0 and 1), the more inequality.  The Gini Ratio has been around and used by economists for a very long time.  I first learned about it in an ECON 101 class in 1968 at CCNY.

Then the CUNY profs looked at what inequality would have been without those tax and transfer policies.  The result is a reasonable, if imperfect, measure of how much governments do to minimize income inequality.

Not that there aren’t some problems with the data.  One red flag:  The data used by the author is from the early to mid 2000s; so it does not include the effects of the Great Recession nor differences in the policy responses of the countries after the 2008 crash.

We know, for example, that inequality, based on many measures,  has increased in U.S. since 2008.  The Federal Reserve’s “quantitative easing” policy has helped boost equity markets, which has generally been more beneficial to upper income people.  I don’t know what has happened with inequality in other countries over that time.

As confirmed by many other studies, the CUNY report shows that the U.S. leads all advanced economies in post tax and transfer inequality.  Perhaps surprisingly, the U.S. is not an outlier when you examine pre tax and transfer income inequality.    In other words, (free) market driven forces don’t seem to foster much more inequality in the U.S. than elsewhere, according to the CUNY findings.    But other countries apparently do more with public policy to protect people who don’t fare well in the free enterprise system.

One obvious conclusion that might be drawn from the study is that more spending on income transfer programs and more shifting of taxes from lower to higher income people – i.e., more policy driven re-distribution  — reduces inequality.  That should not be a surprise.

Of course, there are fierce ideological differences about redistributive policies; and a lot of differences about how much they harm (or help) overall economic growth, and the size of the total pie to be sliced up and distributed.

The Economist story (based on the CUNY research) reminds us that the few (potentially effective) things government can do to enable lower income folks to be more prosperous,  are very difficult to accomplish, either because the political support is lacking or collateral damage is (or is believed to be) too high. There is also (collateral) damage of not acting.

In addition to major changes to tax and transfer policies, changes to both International and Domestic Free Trade policies, are two other things government can do to move the needle on wage and income stagnation.   The International side of this would have to include an end to currency manipulations (thanks again to Alex McLaughlin for the reminder)  by our major trading partners, which make their goods artificially cheaper here and our’s more expensive abroad.

Changes on the Domestic Free Trade side would involve creating strong  national labor, as well as tax and industrial policy, standards covering all the states.  That ain’ going to happen any time soon, without a massive change in public opinion, and a different Congress and Supreme Court.   Besides, there are also legitimate collateral damage issues here.

Notably, President Obama did not really suggest any blatant re-distributive policies in his State of the Union Address on Tuesday.    At least I did not hear them.  I am sure that his opponents did, whether he said them or not,   Yes, he proposed some changes to transfer policies  — a modest increase in the minimum wage and restoration of lapsed unemployment insurance benefits.  Both of these are marginal and will move the needle only a little for relatively few people.

Also, I did not hear the President mention anything about raising taxes on the rich, this time.  Did I miss that?   And the only mention of Free Trade was a pitch aimed at fast tracking the Trans Pacific Trade Pact.  He may have also said something about FAIR Trade, to acknowledge skeptics in both parties who believe that NAFTA style Free Trade has been harmful.    But significant or game changing transfer payment, tax code, trade and labor policy changes were notably absent.

The President is a pragmatist, to the chagrin of Democrats on his left.   Those on his right think it was all he could do to not quote from the Communist Manifesto.  So it goes.

The President did talk about education and training as a remedy for wage stagnation. That plays better with conservatives and many others, who prefer policies which aim to improve “opportunity” rather than “outcomes.”

Education and training reforms are worthy.  But, unless they are more finely tuned than simply “lets send everyone to college,”  they will not make much difference, especially if they add to mounds of student debt that are both personal tragedies and a major drag on the economy.

We need a vastly better (and respected) system of workforce training.  And we need to help a lot more poor and (shrinking) middle class folk to learn the high end mathematics, science, computing, and engineering skills needed to play a part in the front end of commerce, the ideas and inventions, which can’t be outsourced to cheap labor abroad.  The President mentioned both of those approaches, even if he couldn’t resist more cheer leading for NAFTA like Free Trade.  (Does he really believe that, or is it part of the accommodation pact with the Clintons?)

50 s robinson slide cloeup wb

Yogi Berra about to be sliced by Jackie Robinson

Getting back to overall economic growth, and the size of the pie to be sliced up and distributed.   We may be on safer ground here if we take Yogi Berra’s observation to heart.  When asked by a waitress whether he wanted his pizza sliced in four or eight pieces, he said, “well, Geez, I don’t think I can eat eight.”   Policy makers ought to keep this in mind when they decide how finely to slice the pie.