Posts Tagged ‘wages’

ows_1384995489883

Special mention

wuc141016-605_605 155049_600

MJ-inequality

 

source

The other day, I reported that Fed chair Janet Yellen said a great deal about existing levels of economic inequality at the Conference on Economic Opportunity and Inequality in Boston.

Neil Irwin [ht: ra] reminds us there’s a great deal Yellen didn’t say. She didn’t, for example, say anything about the aspects of the inequality puzzle that have a close tie-in to the policies of the Federal Reserve.

there is a growing body of evidence — far from proven, but certainly gaining traction — that income inequality could be a significant force behind disappointing overall economic growth over the last 15 years.

The story goes like this: The wealthy tend to save a large proportion of their income, whereas middle and lower-income people spend almost all of what they earn. Because a rising share of income is going to the wealthy, spending — and hence aggregate demand — is rising more slowly than it would if there were more even distribution of income. Skyrocketing debt levels papered over this disconnect in the mid-2000s, but now we could be feeling its effect.

If true, this would help account for why the economy has notched mediocre growth since the turn of the century, with the exception being a brief period of the housing bubble.

Yellen also didn’t have anything to say about the economic opportunities that have allowed the gains of a tiny minority at the top to be captured in the first place. Top 1 percent incomes and corporate profits have to come from somewhere. They’re created during the course of producing goods and services—in the United States and around the world. But the workers who did all that producing only get to keep part of the value they create, in the form of wages and salaries; the rest—call it the surplus—is appropriated by their employers, who keep some in the form of corporate profits and then distribute the rest to their owners and top managers. Those employers, owners, and managers spend some of that income and plow the rest into the ownership of various forms of wealth. It’s no wonder, then, that—given the economic opportunities they’ve been provided within current economic arrangements—the distribution of both income and wealth has been getting more and more unequal.

That’s what Janet Yellen didn’t say.

www.usnews

Special mention

suppression 154798_600

NA-CD128_DEFLAT_G_20141016115411

Once again, as in 2010, a specter is haunting the United States—the specter of deflation.

That’s certainly the fear registered by Jon Hilsenrath and Brian Blackstone, writing for the Wall Street Journal.

Behind the spate of market turmoil lurks a worry that top policy makers thought they had beaten back a few years ago: the specter of deflation.

A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.

Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.

The deflation concern is particularly pronounced in Europe and Japan, two economies where policy makers are struggling to come up with solutions to counter especially slow economic growth.

Actually, what we’re seeing right now is disinflation, a slowing of the rate of price increases. But the fear is that disinflation may collapse into deflation, a Japan-style decline in the overall level of prices, in Europe and eventually in the United States.

And why is it a specter? Not because a decrease in prices hurts ordinary workers—who, of course, facing stagnant wages and bad job prospects, would welcome some relief from inflation. No, the fear is that deflation will cut into corporate profits, since it’s a symptom of extremely weak demand. This leads to a slowdown in economic activity and less production and investment by companies. It’s also a sign that the real value of the debt overhang—especially the private debt of households and businesses—will remain high, thus undermining any further increase in lending, and reinforcing the uneven and faltering rate of growth of production and investment.

Thus far, the specter of deflation has not caused all the powers of old United States and Europe to enter into a holy alliance to exorcise this specter. There are still too many antigovernment, inflation-fear-mongers out there for such an alliance to form. But the longer those powers continue on their current trajectory, the higher the risk the current recovery will collapse into deflation.

63398_cartoon_main

Special mention

voter id 154982_600

retailers

As in the classic Prisoner’s Dilemma, retailers could “cooperate” with one another—paying higher wages and enjoying higher sales—but they don’t. Instead, they “defect”—and, as a result, pay low wages and undermine consumer spending for all retailers, including themselves.*

That’s one way of interpreting the new report by the Center for American Progress [pdf]:

While many of these companies’ lobbyists and trade associations continue to pro- mote a low-wage agenda, their 10-K statements reveal how low consumer spend- ing levels undermine their stock prices. In fact, 88 percent of top retailers explicitly cite weak consumer spending as a risk factor.

That retailers depend on consumer spending is not a revelation, but that many retailers see flat or declining incomes as a risk factor is: 68 percent of companies point to flat or falling disposable incomes as a risk. Sixty-four percent of these companies that filed 10-Ks in 2006 cited incomes as a risk factor in their most recent 10-K, compared to just 32 percent in 2006.

Joan Robinson—who should have won the Nobel Prize in Economics but didn’t (because, of course, she was a non-neoclassical, woman economist) and can’t (because she’s dead)—understood this “essential paradox of capitalism”:

Each entrepreneur individually gains from a low real wage in terms of his own product, but all suffer from the limited market for commodities which a low real-wage rate entails.

And, of course, Old Nick before her:

Every capitalist knows this about his worker, that he does not relate to him as producer to consumer, and [he therefore] wishes to restrict his consumption, i.e. his ability to exchange, his wage, as much as possible. Of course he would like the workers of other capitalists to be the greatest consumers possible of his own commodity. But the relation of every capitalist to his own workers is the relation as such of capital and labour, the essential relation. But this is just how the illusion arises — true for the individual capitalist as distinct from all the others — that apart from his workers the whole remaining working class confronts him as consumer and participant in exchange, as money-spender, and not as worker.

 

*In the old days, when I taught Principles of Economics, I used to illustrate the Prisoner’s Dilemma with Puccini’s opera Tosca. You know: Scarpia kills Cavaradossi, Tosca in turn kills Scarpia, and then Tosca kills herself.

70467-swa-income-figure-2b-real-median-income-2-epi

There are two periods to focus on in this recently updated chart of the real median income of working-age American families:

  1. From 1979 to 2007, the real median income of working-age families in the United States rose 17.4 percent, even though the hourly wage increased by only 13.9 percent—which means that Americans were forced to work longer hours and send more members of the household out to work in order to enjoy higher annual incomes. During the same period, labor productivity increased dramatically, by 58.9—which means that most of the income gains went to a tiny minority at the top and not to working-class families.
  2. During the past six years, the real median income of working-age families in the United States has actually declined by 8 percent—thus erasing all of the gains workers had made from 1996 onward.

The result? American workers and their families have suffered a prolonged period of immiseration—relatively, over the course of the past three-plus decades, and now absolutely, to add injury to insult, during the Second Great Depression.