The last time I brought up the issue, I was referring to mainstream economists’ presumption we would forever live in a Goldilocks economy: not too equal and not too unequal but just right.
But, as we know, the Goldilocks economy no longer exists (and hasn’t, for over three decades), as economic inequality has continued to grow.
Well, as Jeff Spross has discovered, the same principle applies to economic growth.
The presumption is, fast economic growth is a good thing. Everyone benefits from a larger economic pie. And slower-than-normal growth is something we should be worried about.
Not so fast. A dark and unpleasant truth is that many economic elites actually have a vested interest in anemic job growth and a slack labor market.
How so? As I explained to my students yesterday, faster economic growth means (usually) tightening labor markets and more worker bargaining power—and, as a result, higher wages. On one hand, those increasing wages mean more worker income and more mass consumption. But they also put the squeeze on profits, and the distributions of those profits to the rest of the economic elite.
To which Spross adds:
Finally, there’s a lifestyle issue at play. If the incomes of everyday workers go up, then elites’ real incomes must go down. The labor they’re buying is more costly. This completely changes where and how the elite can spend their money, and what they can and can’t consume. The rising “servant economy” rests on a wide relative gap between high and low incomes.
Put it all together and that’s why we’re seeing such an intense debate about Fed policy in the current economic situation. It’s not just about interest-rate spreads for banks. It’s about the larger and more complex issue of class bargaining power—inside corporations (between workers and capitalists over the size of profits, and between capitalists and the management to which they distribute a portion of the profits) and outside corporations (not only in terms of the commodities capitalists sell to workers, but also the “booty” they share with shareholders, investors, financial institutions, and others).
As Spross puts it,
Elites obviously don’t want to completely tank the economy. But it certainly works for them if it stays modestly stagnant, maximizing the growth of the pie while minimizing worker bargaining power.
It’s the Goldilocks principle: Don’t run the economy too hot or too cold. Run it just right.