Berkeley, Calif.
THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor â?? most of the rest of us â?? are unemployed, underemployed or underwater. Fridayâ??s jobs report from the Bureau of Labor Statistics will almost surely show fewer new jobs created in August than the 125,000 needed just to keep up with growth of the potential work force.
The national economy isnâ??t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
Thatâ??s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means havenâ??t kept up with what the growing economy could and should have been able to provide them.
This crisis began decades ago when a new wave of technology â?? things like satellite communications, container ships, computers and eventually the Internet â?? 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 as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? 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. What families didnâ??t receive in wage increases they made up for in work increases. 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.
When American families couldnâ??t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless â?? as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.
Eventually, of course, the debt bubble burst â?? and with it, the last coping mechanism. Now weâ??re left to deal with the underlying problem that weâ??ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldnâ??t have enough money to buy what the economy is capable of producing.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nationâ??s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
Itâ??s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
Whatâ??s more, the rich donâ??t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where theyâ??ll summon the highest returns â?? sometimes thatâ??s here, but often itâ??s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
Robert B. Reich, a secretary of labor in the Clinton administration, is a professor of public policy at the University of California, Berkeley, and the author of the forthcoming "Aftershock: The Next Economy and America's Future."?
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