The chart below comes from “The full extent of executive pay” by Daniel Christopher Jones, Business Management US, September 15, 2009. It shows how many years it would take a minimum wage worker, an average worker, or the president of the United States to make the same amount that top CEOs make in a year. [Click on the article link for a bigger and clearer view of the chart.]
All the talk about the need to restructure our economy and end our dependence on debt financed growth has tended to overlook a critical issue—declining worker earnings. The downward pressure on wages helped to boost profits but only because worker consumption could be sustained by ever greater debt. If we are going to change the way our economy functions we need to address the forces that have been driving down wages.
The blog Angry Bear recently had an interesting post dealing with this issue. Among other things it offered data illustrating the fact that labor’s share of income has been declining for decades. In other words, we are dealing with a long term structural problem. And unless you hear policy makers address this reality you can be pretty sure that what they propose to do will not be of much help to the great majority of working people.
Here is the relevant part of the post:
This shift to an environment of stronger productivity and weaker real growth generated an interesting development that has received little attention among economists or in the business press.
This development was a secular decline in labor’s share of the pie. [See chart below.] Prior to the 1982 recession there was a strong cyclical pattern of labor’s but it was around a long term or secular flat trend. But since the early 1980s labor’s share of the pie has fallen sharply by about ten percentage points. Note that the chart is of labor compensation divided by nominal output indexed to 1992 = 100. That is because the data for each series is reported as an index number at 1992=100 rather than in dollar terms. So the scale is set to 1992 =100 rather than in percentage points. But it still shows that labor payments as a share of nonfarm business total ouput has declined sharply over the last 20 years and prior to the latest cycle we did not even see the normal late cycle uptick in labor’s share.
If this chart gets a lot of attention it will be interesting to see how the libertarian and/or conservative analysts who keep coming up with all types of excuses to explain away the weakness in real labor compensation in recent years explain this away. If you really want to raise a stink you could look at this as a great example of the Marxist immiseration of labor that Marx believed was one of the internal contradictions of capitalism that would eventually lead to its self destruction.
[click on chart for easier viewing]
Oregon faces a severe fiscal crisis. In short, the state is just not taking in enough money to fund all the services needed by people. In response the 2009 Legislature passed two measures (66 and 67) that will raise $733 million in new revenue in the 2009-11 biennium. While not a solution to the crisis, this extra money will help reduce cuts in spending on education, health and public safety. These measures also help produce a more equitable tax structure.
In brief, Measure 66 raises taxes on high income Oregonians—couples earning over $250,000 a year and individuals earning over $125,000 a year. Measure 67 raises taxes on profitable corporations. (More details on both measures here).
Perhaps not surprisingly, there are those that oppose any tax changes, even ones as important, needed, and justifiable as these. They succeeded in putting these measures on the January ballot, hoping to get voters to reject them.
One of their arguments is that the tax increases are unfair. But really what is unfair is the unbalanced nature of our existing tax system (see table below). For example, as the Oregon Center for Public Policy explains:
Today, low-income Oregonians pay a larger share of their income in state and local taxes than wealthy Oregonians. In fact, the highest-income Oregonians pay the lowest share of their income in state and local taxes. . . . After accounting for the deduction of state income taxes on federal tax returns, the lowest-income Oregonians currently pay 8.7 percent of their income in taxes, the highest share among all income groups. Middle-income Oregonians pay 7.9 percent. The wealthiest 1 percent — households with income in excess of $410,000 and averaging over $1 million — pay only 6.1 percent of their income toward state and local taxes.
The passage of Measure 66 will help move things in a more equitable direction:
The lowest-income Oregonians will still pay the same 8.7 percent of their income in state and local taxes, but the share will increase for those at the highest levels of the income scale. For the wealthiest 1 percent, for example, state and local taxes will increase from 6.1 to 6.6 percent of their income. For the next highest 4 percent of taxpayers, taxes will increase from 7.0 to 7.1 percent of income. These slight changes for those at the top 5 percent of the income scale constitute a small but important step toward making our tax system better based on ability to pay.
Other opponents are calling these measures “job-killer tax increases,” especially Measure 67. The recently established Oregonians Against Job-Killing Taxes (OAJKT) argues that “Oregon government doesn’t even need the new taxes. They already have the money sitting in bank accounts.” Their website says that if the measures are defeated “no services have to suffer.”
In a recent Oregonian column, Steve Duin examines those behind the OAJKT effort to overturn Measures 66 and 67. He concludes as follows:
As Chuck Sheketoff at the Oregon Center for Public Policy noted, these riffs are necessary because only 3 percent of Oregonians will pay higher taxes if Measures 66 and 67 pass. . . .
Tis the season. I’ll end with this. The OAJKT website insists that “the most damaging” tax increase for business would require that a C-corporation with $25 million-$50 million in Oregon sales will now pay a gross sales tax of $30,000.
That’s all? Less than one-tenth of 1 percent? For many companies that, for years, have paid the $10 minimum? Who in the world considers that unreasonable?
A number of economists teaching and working in Oregon have recently published a statement in defense of Measures 66 and 67. You can read it here.
Here is a depressing one for the start of the new academic year. It is by Michael Mandel and it comes from BusinessWeek, the September 28, 2009 issue.
College: Rising Costs, Diminishing Returns
This hasn’t been a good decade so far for young college grads. Full-time workers ages 25 to 34 with only bachelor’s degrees saw a sharp 11% decline in their real earnings between the end of the tech boom in 2000 and 2008. That’s according to income statistics released on Sept. 10 by the U.S. Census Bureau. The drop in pay for young college grads looks even worse when compared with the continuing rise in college costs over the same stretch (chart below). Adjusted for inflation, tuition, fees, and room and board rose 23% at private four-year schools and 36% at public institutions. The final blow: Young college grads saw a bigger pay drop, on a percentage basis, than peers with only an associate degree.
It is often hard to know how our fellow Oregonians are doing — for a good look check out “Survey shows how recession has hit Oregon households” by Richard Read in The Oregonian, September 17, 2009.
The articles makes clear that there is a lot of suffering going on in Oregon, even more than in the nation as a whole. Some highlights:
The table above comes from the Oregon Center for Public Policy report by Joy Margheim entitled Labor Day Woes and Wishes.
Consider the table carefully—among other things it shows that over the period 2000-2007, the bottom 60% of state income earners actually lost money (in real terms). Only the top 20% gained, and most of that gain went to the top 1%. This outcome represents a sharp challenge to our media and elected officials who talk about overcoming the Great Recession and returning to “normalcy.” Is a return to a political economy in which the majority actually suffers an income loss really our goal?
Clearly, we need to transform the way our economy works and our economic policies should be judged accordingly. At the same time, a look at the enormous gains enjoyed by those at the very top of the income distribution speaks volumes about the source of resistance to the needed changes.
The myth of US superiority remains strong. No need to make structural changes in our system or learn from others. We enjoy the very best of everything–the envy of the world. Well, not according to the data in the 2009 edition of the OECD’s Social Indicators.
Doug Henwood, editor of Left Business Observer, sums up the data as follows:
The general picture of the social and physical health of the U.S. isn’t pretty. In a summary table at the beginning of the volume, countries are rated with a red, yellow, or green symbol, depending on whether they fall in the bottom, middle, or top of the rankings on eight crucial indicators. The U.S. scores a yellow on six (among them employment, reading skills, the gender wage gap, and life expectancy), and a red on two (inequality and infant mortality). But we are near the top in income. Far poorer countries, like Hungary and the Czech Republic, do a lot better than this imperial colossus. Maybe it’s not so bad to have a Commie past. And not only does the U.S. turn in an awful performance—we’ve been getting worse on six of the eight.
To see a more in-depth examination of some of the indicators, complete with charts highlighting the relative performance of the US visit THIS PAGE.
It is easy to be confused about the state of the economy. However, if we stop trying to figure out turning points, when a recession ends and an expansion begins, and start thinking about longer terms trends, things become a bit clearer.
Consumption accounts for about two-thirds of U.S. Gross Domestic Product (GDP). What kept GDP growing over the last expansion (2001-2007) was rising consumption, and what kept consumption growing was debt. The result was an ever shakier foundation that has now collapsed. The reason the expansion was built on debt was that despite the growth in GDP, real wages and household income trended downward. If we are going to have a healthy economic future we must ensure that structures are in place to reverse that trend.
The following chart, taken from the blog Mish’s Global Economic Trend Analysis shows just how critical consumption gains have been to economic recovery.
So, where are we today? The answer is not very promising. According to Bloomberg News:
Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department figures released yesterday. The Obama administration’s tax cuts, extended jobless benefits and a one-time Social Security bonus have helped mask the damage done by the worst employment slump since the Great Depression. Personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and the biggest drop in four years, yesterday’s Commerce report showed.
Without higher wages and income there won’t be any sustained increase in consumption, which means business investment will remain weak, and . . . well, you probably get the picture, no meaningful economic recovery.
Of course employment is also important (individual wages might not go up significantly but an increase in total employment could still generate an increase in total spending), but the news is no better on this front. In a previous post I highlighted (check out the chart) the fact that the private sector has almost stopped creating jobs. I quoted the business analyst Michael Mandel as follows:
Between May 1999 and May 2009, employment in the private sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period. It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years.
And of course this doesn’t even speak to the quality of the jobs; for example, involuntary part-time employment has soared.
Sadly, there is very little reason to expect any significant near term decline in unemployment. In fact, as a recent post at Mish’s Global Economic Trend Analysis noted: “If [past business cycle patterns] hold, unemployment will rise until 2011 or beyond. . . . Odds of a double dip recession similar to 1980-1982 are high after whatever inventory rebuilding and bottom fishing in housing ends.” [Check out the chart below from the same source–it shows how the past two expansions, unlike the previous seven, are marked by continuing increases in the unemployment rate.]
So—don’t confuse stabilization with recovery, and keep your eye on real fundamentals—majority living and working conditions.
There is a new attack on social security. As you may remember, before the recent collapse of the economy, conservative forces claimed that the social security system was headed for crisis and offered privatization as the solution.
The truth was that there was never a real crisis; it was manufactured. The health of social security is determined using models to predict economic trends over the next 75 years. The social security crisis was the result of the assumptions used in the modeling—these assumptions assumed rates of growth that were lower than during the 1930s. If one made growth assumptions that were more in keeping with historical trends, there was no crisis. The aim of the conservatives was to push money into the stock market where private interests could make millions managing it. Thank goodness this privatization push was resisted.
But the same forces are hard at work again. The Associated Press recently ran a story calling social security a “giant federal Ponzi scheme” that will soon collapse because of a lack of money. The Washington Post recently warned us that social security is one of “the primary drivers . . . of the nation’s financial problems.”
This is all silly. Social Security is still running surpluses. Moreover, even using its conservative assumptions, the social security administration is forced to admit that the current system will have plenty of money to meet all its obligations through 2037. The Congressional Budget Office puts the date at 2043.
Would you give up a program working as intended because of predictions that SOME 30 YEARS FROM NOW it might not have sufficient money to cover all its promises?
Actually, even if the social security administration’s prediction is accurate, we still don’t face a crisis. Right now social security taxes are paid on all labor income up to $106,800. Earnings above that ceiling are not taxed. Why is this important? As the Wall Street Journal explained in a recent article titled “Pay of Top Earners Erodes Social Security”:
The data suggest that the payroll tax ceiling hasn’t kept up with the growth in executive pay. As executive pay has increased, the percentage of wages subject to payroll taxes has shrunk, to 83% from 90% in 1982. Compensation that isn’t subject to the portion of payroll tax that funds old-age benefits now represents foregone revenue of $115 billion a year. . . .
Lifting the earnings ceiling could result in higher Social Security benefits payments to higher-income individuals, since benefits are based on a worker’s highest 35 years of earnings. But the additional tax revenue would have decades to earn a return, thus offsetting the cost of the additional payments.
Social Security Administration actuaries estimate removing the earnings ceiling could eliminate the trust fund’s deficit altogether for the next 75 years, or nearly eliminate it if credit toward benefits was provided for the additional taxable earnings.
You are reading that right—even using the most conservative estimates about future economic trends, the social security system would remain fully operational if we just removed the earnings ceiling on the wealthy.
So, what is class power? One measure of class power is the ability to shape public discussions in such a way that attention is focused on what you want to talk about and away from what you don’t want to talk about. The rich want social security privatized, not saved. So the media obligingly give us story after story about the crisis in social security and the need to drastically change the system.
The rich don’t want to talk about the growth in inequality and its negative social consequences. Thus, simple reforms that would strengthen the system are never discussed (except by publications like the Wall Street Journal which are largely read by an audience that fully understands its class interests).
When will we recognize and promote our own class interest?
U.S.: Das Camp-ital – Kids Overthrow Bosses on ‘Capitalism Day’
By Ben Case
LIBERTY, New York, Jul 28 (IPS) - Workers at a munitions factory in Almosnino walked out last Wednesday, joining an anti-war protest nearby. The combined strikers and protesters later stormed the factory after a scuffle with police who were trying to arrest a crowd that was blocking a truck from leaving the factory.
Workers immediately held a meeting inside their occupied factory and unanimously voted to suspend production of weapons and switch to the production of solar panels.
Later that day, the people of Almosnino, reeling from economic woes and unable to pay for food, convinced the chief of police to cede power and allow a population without money to eat for free.
This was the culmination of a daylong social experiment, practiced once a year by Shomria summer camp.
Shomria, located outside the small town of Liberty, New York and open to children aged eight to 15, is run by Hashomer Hatzair, a Socialist Zionist youth movement in Israel, the U.S., and Canada.
Once per summer, the camp runs a ‘Yom Capitalism’ (Hebrew for ‘Capitalism Day’) in which the entire camp simulates a town with a free market economy. The remarkably realistic exercise comes complete with a bank, government offices, and printed money in a make-believe town named Almosnino.
“It might seem weird to think about a ‘capitalism day’ in a capitalist society. But what we normally do here at camp is live in a kibbutz-style socialist village,” explained Yotam Marom, head of continuing education for Hashomer Hatzair, and facilitator for the oldest age groups at Shomria.
“This day has meaning in contrast with the way we run things on a day-to-day basis. It gives us the ability to reflect on capitalism in a way that you don’t get just living in a capitalist society,” Marom told IPS.
Shomria is run according to egalitarian philosophies. Work is shared evenly, issues are discussed collectively, and everything is decided by consensus.
“We do all of our own work,” Marom told IPS. “Aside from a few support staff, the camp is run exclusively by youth.”
Central to the camp’s ideology is the concept of youth leading youth. The youngest camper is eight years old and the oldest counselor is 23. “Everyone is connected to each other, everyone is an educator and everyone learns,” Marom added.
When campers wake up on Capitalism Day, they are handed an envelope containing their starting financial situation. Most will start with both some money and some debt, a few will start with a lot of money, and even fewer will start with land and a business.
Throughout the day, kids are able to get jobs, acquire loans from the bank, and start businesses. Everything that goes on in the day, including eating, requires money, which is printed up the night before and available through the bank or through their labour.
Some counselors were also workers and business owners, but many were pre-set ‘characters’ such as the mayor, the factory owner, chamber of commerce and bank officials, and police officers.
Early in the day, a multitude of businesses opened, ranging from lemonade stands to massage parlors and salons to a sign shop, selling advertising materials to other businesses.
Most campers found jobs working in the factory, making ‘bombs’ out of plastic bottles, water, and food coloring. A truck picked up the finished products and delivered them to an imaginary military buyer.
“We used a munitions factory this year because we wanted to connect labour issues to the war,” said Adam Bresgi, a 20-year-old counselor who played the part of the mayor.
The day also included politics. An election pitted Bresgi, a socially liberal, fiscally conservative, pro-war incumbent, against a green, pro-worker’s rights, anti-war challenger, played by a 23-year-old counselor.
Throughout the day, two ‘TV anchors’ put on periodic live news shows to inform everyone about what was happening all over the camp, even holding a debate between mayoral candidates.
By the afternoon, when the bank began calling back loans, nearly all businesses defaulted and closed, leading to an economic crisis in Almosnino. The mayor proceeded to simulate a bailout, giving government money to the factory and several other businesses deemed ‘too big to fail’.
This, along with divisions that had been forming throughout the day, sparked protests and a strike that led to the eventual ‘revolution’.
As interesting as the outcome, though, was the social dynamics throughout the experiment. “The most educational part of Capitalism Day is watching relationships transform,” Marom told IPS.
“Normally everything is collective: They pool their candy and share. Their counselors care about their feelings. They work to understand each other and really try to provide for each other,” he said.
“But on Capitalism Day the relationships get flipped on their heads in a moment,” he continued. “Kids wake up and have money or don’t, and that creates class divisions on the spot that in turn create divisions between the kids in reality not in the game.” Indeed, many campers reported having serious feelings about what happened on Capitalism Day.
“It was much harder than I thought to get money,” Gal Gelbard, age 10, told IPS. “When you don’t have money today, you don’t have fun. You can work hard all day and still not have enough money.”
Nine-year-old Idan Cohen told IPS he enjoyed the experience even though it wasn’t easy. “Today taught you how to take care of yourself with no parents and just your own money,” he said. “It taught you how to be responsible.”
“If you have no money now you know how it feels, how it can be for our parents,” Cohen went on. “You are sometimes being a little spoiled to your mom, but now we get it and we know.”
Tamar Golan, at age 23 one of the oldest people at Shomria, said she distinctly remembered her first experience with Capitalism Day as a camper.
“I just remember walking around and having all of my interactions with other people be through money,” she told IPS. “That’s when it clicked for me what the social influence of capitalism is – isolating.”
Golan played the part of the opposition mayoral candidate, who beat the pro-business incumbent mayor by a landslide in a late afternoon election as the economy crumbled.
Despite not knowing Capitalism Day was happening until the morning of it, campers were astonishingly clever and resourceful. Prime examples were workers organising a class action lawsuit against the factory owner and police putting undercover agents in spontaneously forming organised crime gangs.
“People acted just like their roles, it was amazing,” Marom told IPS. “Cops acted like cops. Bosses acted like bosses. Workers acted like workers,” he said.
Perhaps the most important question raised by Yom Capitalism was: Why do people in society behave the ways that they do – are there certain roles because people are just different from one another or do power relationships inherently create such dynamics?
Shomria was founded in 1946, then serving as a training farm for people to learn how to live on kibbutzim before they would move to Israel, and later developed into a summer camp.
