A Generation Of Class Warfare

Robert Reich reminds us of the fundamental imbalances of our economy:

Organized labor is down to about 7 percent of the private work force. . . .

This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending . . . First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did). Second, everyone put in more hours. . . . By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more. . . .

From 2002 to 2007, American households extracted $2.3 trillion from their homes. Eventually, of course, the debt bubble burst. . . .

The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. . . . In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income. It’s no coincidence that the last time income was this concentrated was in 1928.

He suggests that a low level of spending compared to investment, and an increased share of investment made abroad and in bubble prone assets, partially explains why wealth for the rich helps the economy less than wealth for those who are less well off.

Who is getting rich?

One data point that is missing is how very large a share of the growth in the nation's wealth in recent years has been captured by the financial industry, as opposed to the "real economy." This distinction may be crucial in figuring how wealth got so concentrated and whether there are changes to the way we regulate the economy that could prevent it from being accumulated where it isn't earned in an economic sense.

What should we make of the declining private sector union movement?

He notes the decline of the labor movement. But, he doesn't really explain what to make of it. Private section union membership levels are indeed at levels similar to those seen just before the Great Depression. But, then, they were growing like wild despite violent legal hostility to their existence and almost no legal protections for the right to organize. Now, there are legal protections for unions - not as strong as those protections were at their zenith, but certainly far more meaningful than they were when the union movement first grew to be an important force in American political life.

Maybe labor unions are declining because they have, in fact, accomplished most of what they have to offer through legislation. I'm open to the possibility that the decline of unions in the United States is simply a case of losing too many legislative battles that have created an environment hostile to unionization. But, I think that it is unreasonable to rule out the possibility that unions have to find new ways to add value for workers, if they expect to survive, or that they may be replaced by new and different institutions that serve similar ends. If labor unions are so great, why can't American workers be convinced to organize them and join them in large numbers? Who, outside the labor movement, sees a dire need for a solution to his problems that looks like a union? If not, why not?

Unions were clearly vital to our nation's prosperity when it had an industrial economy. But, unless we figure out a way to revive our industrial sector, or make unions relevant in a post-industrial world (as the public sector union movement has managed to do), unions are dinosaurs.

One narrative that is out there in conservative circles is that unions were too successful in the workplace, securing compensation for workers (and artificially increased the prices of the goods that they made) and union rules that were too strong (reducing the quality of the goods they made and the productivity of the firms they organized), weakening the companies were they were in place, leaving those industries vulnerable to foreign competition.

The problem with that narrative is that it isn't a great fit for facts.

No conceivable compensation rate could make pay in jobs that were offshored competitive with the pittance earned by foreign labor developing countries, and the impact of labor costs on prices while real, wasn't huge compared to the price of the goods.

Union firms are also, on average, generally more productive than non-union firms, offsetting increased labor costs. And, empowering rank and file workers provides a way for ideas about how to improve production methods and quality to management that modern non-union shops may be missing out on.

There may be a few cases where the narrative fits, but I'm not at all convinced that it tells all, or even the most important parts, of the story.

Does Inequality Flow From Productivity?

Perhaps more importantly, Reich doesn't really grapple hard enough with the idea that inequality may partially be a product of capitalism working too well, in a narrow sense, rather than failing.

Maybe the reason that the median male income has been stagnant for thirty years is that the gap between what he can produce in the economy and what a college educated person can produce in the economy has widened. He has a little more competition from abroad and he can't produce much more value now than he could then. A highly skilled and educated elite, in contrast, may have grown dramatically better positioned to add value to society and could be reaping the economic benefits of that.

I don't believe that a productivity narrative tells the whole story. But, I do think that it is part of the story, and it isn't a part of the story that is amenable to easy answers.

We have a society that has done a piss poor job of education people who aren't on track to go to college for decades and hasn't really done anything to change that or even recognized it as an important social problem that needs to be solved. We have also experienced serious credential inflation that has not always produced corresponding improvements in the abilities of the people who have the credentials. There is room for improvement, and improving the way we prepare those who aren't on track to graduate from four year colleges for their careers and private lives would make a difference.

Yet, we're at a point in history where we are aware that there might be some limits on how much value education can add, probably more aware than reality justifies, given the experience of a number of competitor nations that seem to have developed a better educated working and middle class then the United States, without the same amount of credential inflation.

There is some truth to the fact that there are limits. The notion that we could teach every child in the school system, or even any particular child whom we choose to focus our efforts on, to do well enough in school to complete a genuine four year college degree and have the competencies we expect from someone who earns a four year college degree in a typical selective college or university today, is a pipe dream. There are limits to what education can accomplish in terms of social equality or learning. But, that doesn't mean that we have come anywhere close to the boundaries of what can be accomplished in the system that we have now. We need an education system that focuses on providing something better what it does now, rather than setting the impossible goal of having everyone reach its peak.

What Creates National Wealth?

We also need our policy makers to think again about what creates national wealth. The case that one can have a prosperous society that is truly post-industrial and can sustainably outsource production wholesale without ill effects is looking more and more implausible. We may have lost not just good paying jobs when domestic manufacturing was replaced by imports, but an engine of future economic development.