What's the fix?
Fix the wage crisis, help the big picture
Commentator Jeff Madrick says a lot of our economic problems root from a wage crisis that's been troubling the average worker for 35 years. He shares a list of solutions for our "What's the Fix" series.
Commentator Jeff Madrick (jeffmadrick.com)
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TEXT OF STORY
Scott Jagow: It's time once again for "What's the Fix? -- our series on solutions for the economy. Commentator Jeff Madrick says there's one thing that would fix a lot of problems: Better pay for the average worker.
Jeff Madrick: We've had a wage crisis in America for 35 years. One number tells it all: The typical man in his 30's today earns less after inflation than a man in his 30's did in the 1970's. The main reason typical family incomes have risen at all over the past 30 years is that women have gone to work.
The wage crisis is a big reason why Americans borrow so much. It's a big reason why rising health care costs are so painful, why a growing number of mortgages end in default. And it's a big reason why Americans want their taxes cut even more.
Can government make a difference? Yes. Here are some of the things the new administration and Congress must do:
Enforce the labor laws vigorously. Raise the minimum wage regularly. Enable unions to organize without undue and often illegal management interference. Invest aggressively in transportation infrastructure and energy alternatives.
Make sure the Federal Reserve balances concerns about inflation with worries about jobs. Stop raising interest rates every time there's a wage hike. And encourage the president to call it as it is when CEOs make outrageous salaries while their workers' incomes are declining.
My gut is the new president is up to this agenda. But the hard work won't be over once the economy is back on track.
Jagow: Jeff Madrick researches economic policy at the New School. His new book is called "The Case for Big Government."
Comments
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From Haleyville, AL, 12/16/2008
To me the problem is simple plumbing. You cannot get more water out of a pipe than goes in. IN means income: wages, earnings and new debt. (Debt isn't traditional income, but that is the way we use it now. Think credit cards.) OUT means spending: debt repayments, purchases, losses, taxes.
What has sunk this economy has been the demanding of faster OUT than IN, along with constrictions on the IN. Insufficient wages for those who really work, while those who can give themselves fat income do so at will, has distorted the system until it is now breaking. Those who sold impossible mortgage terms were trying to ride a horse without feeding it (OK, sudden metaphor change, but same idea.) Now the horses (that's ordinary people trying to get by) are dying. So beat the horse, of course. Duh!
Illegal immigrants would Not be a problem if they were paid fairly, so blame those who set the wage. "Market forces" alone blindly gravitates toward slavery. (Why do you think slavery dominated human history? Amoral market forces, which includes "get away with what your advantage permits." Also unfettered competition, which says "if you don't do it, the other guy will, and he'll win.") Morality must control market forces, else capitalism will have painful corrections, including full-blown revolutions in extreme cases, like maybe soon.
Full-time work, no matter how lowly the job, should support a nuclear family (traditionally a couple with 2 children) at more than a meager subsistence level. (Those who want more should be free to seek it; I'm talking floor here, not ceiling. Some argue that mandating a floor is communist or socialist, and destroys the "freedom to fail." No, if one refuses to work or is profligate with their income, they can still fail. But we should not allow the "freedom to be a slave.")
Basic needs are food, transportation and housing. Food is not a major problem yet; housing is where we have shot ourselves. Rents and mortgages are "what the market will bear," set at-will, and are often outrageously profitable for those who have the advantage. (With taxes, sometimes it's the government that gets much of it.) Until they get so greedy they suck the pipe dry, which is exactly what we are seeing. Then they piously foreclose/evict, often destroying real physical assets in the doing, expecting someone else to be eagerly waiting to pay their price. Total lack of humanity, legally enforced. (Some renters retaliate by destroying property. That really helps no one, but can be a cry of the powerless.)
Another foot that kicked the legs out from under this economy was the spike in transportation cost, specifically the price of gas. Many have no choice but to drive quite a way to work. Income stagnant, costs sharply up, IN ≠ OUT, does not work after pipe empties. Those with small pipes fail first, but this time it was enough to notice.
Other basic needs are some disability insurance, preventive and catastrophic health care, and old age support. Our market-place solutions for these needs are beginning to fail even those who have access. It has never even reached many, who have to appeal to a parallel moral system of charity (NOT a market-forces system). In other words, the whole amoral capitalist system is failing for fundamental reasons. Until now we have just refused to admit it. Now we have to.
From Haleyville, AL, 12/16/2008
To me the problem is simple plumbing. You cannot get more water out of a pipe than goes in. IN means income: wages, earnings and new debt. (Debt isn't traditional income, but that is the way we use it now. Think credit cards.) OUT means spending: debt repayments, purchases, losses, taxes.
What has sunk this economy has been the demanding of faster OUT than IN, along with constrictions on the IN. Insufficient wages for those who really work, while those who can give themselves fat income do so at will, has distorted the system until it is now breaking. Those who sold impossible mortgage terms were trying to ride a horse without feeding it (OK, sudden metaphor change, but same idea.) Now the horses (that's ordinary people trying to get by) are dying. So beat the horse, of course. Duh!
Illegal immigrants would Not be a problem if they were paid fairly, so blame those who set the wage. "Market forces" alone blindly gravitates toward slavery. (Why do you think slavery dominated human history? Amoral market forces, which includes "get away with what your advantage permits." Also unfettered competition, which says "if you don't do it, the other guy will, and he'll win.") Morality must control market forces, else capitalism will have painful corrections, including full-blown revolutions in extreme cases, like maybe soon.
Full-time work, no matter how lowly the job, should support a nuclear family (traditionally a couple with 2 children) at more than a meager subsistence level. (Those who want more should be free to seek it; I'm talking floor here, not ceiling. Some argue that mandating a floor is communist or socialist, and destroys the "freedom to fail." No, if one refuses to work or is profligate with their income, they can still fail. But we should not allow the "freedom to be a slave.")
Basic needs are food, transportation and housing. Food is not a major problem yet; housing is where we have shot ourselves. Rents and mortgages are "what the market will bear," set at-will, and are often outrageously profitable for those who have the advantage. (With taxes, sometimes it's the government that gets much of it.) Until they get so greedy they suck the pipe dry, which is exactly what we are seeing. Then they piously foreclose/evict, often destroying real physical assets in the doing, expecting someone else to be eagerly waiting to pay their price. Total lack of humanity, legally enforced. (Some renters retaliate by destroying property. That really helps no one, but can be a cry of the powerless.)
Another foot that kicked the legs out from under this economy was the spike in transportation cost, specifically the price of gas. Many have no choice but to drive quite a way to work. Income stagnant, costs sharply up, IN ≠ OUT, does not work after pipe empties. Those with small pipes fail first, but this time it was enough to notice.
Other basic needs are some disability insurance, preventive and catastrophic health care, and old age support. Our market-place solutions for these needs are beginning to fail even those who have access. It has never even reached many, who have to appeal to a parallel moral system of charity (NOT a market-forces system). In other words, the whole amoral capitalist system is failing for fundamental reasons. Until now we have just refused to admit it. Now we have to.
From afton, VA, 11/26/2008
Illegal Immigration?!??!??!?!
http://video.google.com/videoplay?docid=4094926727128068265
Listen to the 9 minute mark on this. LEGAL immigration thanks to Congress circa 1960s is THE ISSUE.
From afton, VA, 11/25/2008
CLUELESS! PATHETIC! And I'm being quite civil.
Inflation is the devaluation of your dollar and the direct result of the "Fed" a private bank with the ability to print money out of thin air.
Think Monopoly money fella.
Our dollar, as a result is worthless.
Second, the government uses Hedonics, weighting and substitution to calculate inflation. You buy steak today, tomorrow you cant afford it so it says those hotdogs you bought that were cheaper and thus inflation went down.
Social Security amounts are predicated on inflation rates. Inflation is really much higher, see shadowstats.com
This problem is not fixable. All Fiat currencies revert to zero and that is where ours is heading.
From Culcairn, 11/25/2008
Don't we love to find a scapegoat. No number 'illegal aliens' have caused the shutting down of factories and the shifting of employment to 'overseas' destinations. Could we please stop blaming the weakest for the problems generated by the 'strongest'. Read some US history to at least gain a minimum perspective. In the meantime, 'when pointing the finger, remember more are pointing at the pointer than the "accused"'. Perhaps human nature wishes to look for an "alien" influence. America is one country within this World. Why don't we ever hear the pronouncement (ie from evangelicals, etc) "God Bless this Planet".
sincerely.."If it happens, believe it."
Anothe Philos (100 AD)
From Charlotte, NC, 11/25/2008
How could anyone have a discussion with the collapse of wages in the United States without addressing the elephant in the room? ... ILLEGAL ALIENS!!!
Entire sectors of the workplace have seen their wages drop into free-fall with the influx of cheap illegal labor. Make no mistake, I'm not talking about fast-food. Industries that once offered a ticket to the middle class are gone.
Meat packers in the mid-west who, 30 years ago, earned $20 an hour with good benefits now make $8 with few benefits. Is it any coincidence that this industry is now virtually 100% Latino, most if it illegal? Entire Latino communities, like old company towns, have sprung up in places like Nebraska and Iowa.
Construction wages are in free-fall. Good jobs as dry wall hangers, framers, concrete workers, roofers, landscapers, painters and laborers have been taken over by low wage, illegal labor. During the massive construction boom in North Carolina it was possible to read the help wanted adds for weeks at a time and not find a single add for these jobs.
Wage pressure on employers is IMPOSSIBLE as long as there's an ENDLESS supply of willing workers south of the Rio Grande who are ready, willing and able to migrate to the United States and work for less, a lot less.
From Cleveland, OH, 11/25/2008
Jeff is old enough to remember that price controls didn't work for Nixon. Wouldn't it be nice if we could legislate wage levels. Perhaps the wage crisis is related to the fact that we are now competing on a global scale with competent people. The only way to raise wages is to be better at something. This is true on a macro and micro scale.
From Jacksonville, FL, 11/25/2008
I do not understand why cutting corporate tax rates is not part our economic stimulus conversation. Make US goods and portable services more attractive on foreign markets, as well as attracting investment. I agree with Cesar (1st comment) that very little of the commentary has merit. The man answered his own question in his opening premise, inceased labor supply (women) has tamped down wage growth.
11/25/2008
This was already done during the Great Depression when Hoover met with business leaders to convince them to keep wages high (The Forgotten Man by Amity Shlaes). It didn't work then and it won't work now. If anything it prevented the recover of the depression.
From Houston, TX, 11/25/2008
Offer home owners this option:
IF they want to sell their home AND they are underwater on their existing mortgage AND they can't currently sell their home for what they owe
THEN:
* Let the home owner sell the home for the best price they can get.
* Let Uncle Sam pay off remaining mortgage amount the seller can't cover to the lender (less some penalty against lender for approving loan to begin with)
* Seller pays back Uncle Sam (interest free) by a (5?) percent increase in the seller's federal income tax rate coupled with any gains made on future home sale(s) until slate is clean.
This idea gives some relief to sellers and lenders without shifting the entire burden of responsibility to the taxpayers in the form of a bailout.
Everybody possible is ultimately made whole and the system gets moving again NOW.
Note that I use the word "home" and not "house" so as to distinguish between primary residence homeowners and speculators.
Thanks for your time,
Hal McKinney
(I'm a software developer… not really a finance guy so I'm sure I left out a few complexities.)
P.S.
* I believe that the current (and historic) logic to get out of this (preplanned?) mess is to (ultimately/continue to) devalue the dollar via "inflation" so home prices will start going up again.
* Inflation, in essence, amounts to re-taxing every dollar everyone has ever saved their whole life.
* Government spending more than it takes in and then printing money to cover the difference is a cause of inflation.
* U.S. National Debt is over 10 Trillion dollars.
* Devaluing the dollar "helps" the US Government forgive it's own debt.
aiYeo.org/u3.htm
From Little Rock, AR, 11/25/2008
Mr. Madrick misses the point that Big Government and Big Labor (whose gains have largely been made at the expense of non-union labor) are part of the problem, not part of the solution. The taxes required to support Big Government depress after-tax incomes and repress the economic growth that brings prosperity. Mr. Madrick fails to mention that the biggest increase in the cost of living for American families since the 1950s has been the cost of government, i.e., taxes.
From San Leandro, CA, 11/25/2008
First, I do not agree with the wage increase. There should be improvements in the productivity. Innovation in productivity. The wage increase makes our products and services uncompetitive. In any case, the market should determine the wages and not the government.
From Birmingham, AL, 11/25/2008
I can agree with Jeff Madrick’s assessment completely. I’m a draftsman that has raised two children, all on less than minimum wage according to government numbers.
From Westlake Village, CA, 11/25/2008
Sounds like a socialist to me!
If he wants things to imporve, get ride of the politicos, more disclosure in government, make a concerted effort to get rid of illegal aliens (that will raise wages) - good old supply and demand - sounds like Adam Smith to me.
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