Bill Totten's Weblog

Sunday, February 10, 2008

The Boom Was a Bust for Ordinary People

by Barbara Ehrenreich

The Washington Post (February 05 2008)


It begins to sound a bit naughty - all this talk about the need to "stimulate" the economy, as if we were discussing how to make a porn film. I don't mean to trivialize our economic difficulties or the need for effective government intervention, but we have to face a disconcerting fact: For years now, that strange stimulus-crazed beast, the economy, has been going its own way, increasingly disconnected from the toils and troubles of ordinary Americans.

The economy, for example, has been expanding, at least until now, and growth is supposed to guarantee general well-being. As long as the gross domestic product grows, World Money Watch's Web site assures us, "so will business, jobs and personal income".

But hellooo, we've had brisk growth for the past few years, as the president has tirelessly reminded us, only without those promised increases in personal income, at least not for the poor and the middle class. According to a study just released by the Economic Policy Institute, real wages actually fell last year. Growth, some of the economists are conceding in perplexity, has been "decoupled" from widely shared prosperity.

I first began to sense this in the boom years of the late 1990s, when I was working in entry-level jobs for my book Nickel and Dimed (Metropolitan Books, 2001). While the stock market soared and fortunes were being made in the time it takes to say "IPO", my $6-to-$8-an-hour co-workers lunched on hot dog buns because that was all they could afford and, in some cases, fretted about whether they could find a safe place to sleep.

Growth is not the only economic indicator that has let us down. In the past five years, America's briskly rising productivity has been the envy of much of the world. But again, there's been no corresponding increase in most people's wages. It's not supposed to be this way, of course. Economists have long believed that some sort of occult process would intervene and adjust wages upward as people worked harder and more efficiently.

We like to attribute our high productivity to technological advances and better education. But a revealing 2001 study by the consulting firm McKinsey & Company also credited America's productivity growth to "managerial ... innovations" and cited Wal-Mart as a model performer, meaning that our productivity also relies on fiendish schemes to extract more work for less pay. Yes, you can generate more output per apparent hour of work by falsifying time records, speeding up assembly lines, doubling workloads and cutting back on breaks. That may look good from the top, but at the middle and the bottom, it can feel a lot like pain.

And what about the unemployment rate? The old liberal certainty was that "full employment" would create a workers' paradise, with higher wages and enhanced bargaining power for the little guy and gal. But we've had nearly full employment, or at least an official unemployment rate of under five percent, for years now, without the predicted gains. What the old liberals weren't counting on was a depressed minimum wage, weak unions and a witch's brew of management strategies to hold wages and salaries down.

So thoroughly is the economy decoupled from ordinary experience that according to a CNN poll, 57 percent of Americans thought we were already in a recession a month ago. Economists may complain that this is only because the public is ignorant of the technical definition of a recession, which specifies at least two consecutive quarters of negative growth. But most of the public employs the more colloquial definition of a recession, which is hard times. And - far removed from whatever happens on Wall Street, the Nikkei, Dax, or the curiously named FTSE - most Americans have been living in their own personal recession for years.

I could see this when I was doing research for a book on white-collar unemployment in 2004. Although the economy was officially on an upturn, I met laid-off people who'd been searching for a job for more than a year and often ended up - after selling their homes and borrowing from relatives - taking low-wage work as big-box sales clerks or even janitors.

In the months ahead, we can expect the hard times to spread. Citigroup has announced plans to eliminate 21,000 jobs; investment banks in general will shed 40,000. The mortgage industry is in a meltdown; Business Wire predicts a 37 percent increase in the number of companies planning layoffs this year. This is what a stimulus package needs to address: the persistent and growing struggles of the middle class and the working class, which is increasingly conterminous with the working poor.

There are reasons for doing so other than compassion. The chronically poor and the battered middle class have become a tripwire in the American economy - generating defaults on debts, depressed consumption and global market turmoil.

Consider how we got into the current credit crisis in the first place, through defaults on subprime mortgages. These went to plenty of affluent folks and have wreaked havoc in gated communities. But overall, subprime loans were designed for, and snapped up by, the poor. According to a recent study from United for a Fair Economy, 55 percent of subprime loans went to African Americans and seventeen percent to whites. Among whites, they went far more frequently to low-income people than to the wealthy - 39 percent compared with 24 percent. Hence the subprime industry's noble boasts about providing the opportunity for home ownership to people who might otherwise have been excluded from it.

And why were so many Americans poor enough to turn to subprime mortgages and other dodgy credit schemes? The chief reasons are low wages and job insecurity. Chronically low wages afflict about 25 to thirty percent of the population - more than twice the twelve percent the federal government counts as "poor". And even earnings in the six-figure range can be canceled overnight when an employer downsizes or outsources, leaving a family without income or health insurance.

For years now, we've had a solution, or at least a substitute, for low wages and unreliable jobs: easy credit. Payday loans, rent-to-buy furniture and exorbitant credit card interest rates for the poor were just the beginning. In its May cover story on "The Poverty Business", BusinessWeek documented the stampede to lend money to the people who could least afford to pay the interest on it: Buy your dream home! Refinance your house! Financiamos a todos! It wasn't just the bottom-feeders that joined the unseemly frenzy to lend to the poor; big companies, such as Wells Fargo and Countrywide Financial, plunged right in. But somehow, no one bothered to figure out where the poor were going to get the money to pay for all the money they were borrowing.

When personal finances are squeezed hard enough, you have the possibility of a genuine recession. People buy less, so growth declines to the point where even the economic overclass has to sit up and take notice. We saw the beginnings of that in the last Christmas season, which even Wal-Mart survived only through perilously deep discounting.

Not that we hadn't been warned. A century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. But, like Wal-Mart, too many of our employers today haven't figured out that their cruelly low wages would eventually curtail their own growth and profits.

Government intervention, whether short-term or long-term, needs to get to the heart of this problem by offering a hand to the poor and the unemployed. Until the House capitulated to Bush two weeks ago, Democrats seemed to be standing solidly behind a stimulus package that would include an increase in food-stamp allotments and an extension of unemployment benefits, both of which are screamingly obvious measures. Current unemployment benefits last just 26 weeks in most states and end up covering only a third of people who are laid off. Food stamps are in even shabbier shape, with an allotment amounting to about $1 per meal. Nothing could be more stimulating than putting money in the hands of those who will spend it quickly.

But you can't jump-start a car that lacks a working battery. We need less titillating talk about "stimulus" and more commitment to some fundamental repairs - higher wages, a real safety net and a return to progressive taxation among them. The challenge isn't just to prop up stock prices but to rebuild an economy in which everyone shares the good times - and no one is consigned to a permanent recession.

_____

Barbara Ehrenreich, the author of Nickel and Dimed (Owl), is the winner of the 2004 Puffin/Nation Prize.

(c) Copyright 1996-2008 The Washington Post Company

http://www.commondreams.org/archive/2008/02/05/6859/


Bill Totten http://www.ashisuto.co.jp/english/index.html

1 Comments:

  • The negatives of the US economy on the working class employee will gain speed with the housing collapse. Globalization isn't going away and all the solutions that are recommended will fail because of supply and demand. In order to have a safety net you have to have lots of Americans who make good money, not a lot of Americans making the minimum wage or paid in cash for services under the table.

    The only reason Americans have not felt this recession sooner was because of the interest rates and the push to use credit to fund the rich mans globalization. When credit dry's up the real living costs based on wages come into view. And most Americans were living on equity or credit, now they have to earn a living.

    None of the fixes will work at this point. It is to late down the road of globalization. Globalization without tariffs was idiotic. As soon as they busted down the damns all the investment and jobs flowed out of the US like water down a hill. The dollar itself became a tariff against our own labor. That tariff actually benefits the wealthy and they have through out history conspired to bust and break unions and liberty against the average person.

    This economy serves only the wealthy. Debt is simply a corporate tax. Taxation is being redistributed on the backs of workers instead of profits of business. This is looking like a modern age feudal society with trickle up taxation for the rich. And now the working class is disposable.

    For all of India's democracy and growth they still have very little liberty. When will we have people harvesting Americans organs illegally to sell to the wealthy? When will we see children sold to people out of the country? When will we start seeing true poverty here in the US the likes of which we have never seen before?

    It's coming. Supply and demand will force the American people to the bottom. And it will benefit one group at the cost of everyone on the planet, the wealthy.

    Who cares if they raised the world minimum wage from $1 to $2. The people in the other parts of the world are still living the same misery and poverty. Where is liberty and justice for all? All I see is a bunch of rich men who claim greed is good for them and them alone. Greed for working class Americans should poor out to the world as well but that isn't true Americans must be willing to lose their profits and wage gains. We are forced to make a sacrifice while the wealthy gain profit from the exchange.

    Do you think the wealthy would have embraced globalization if it didn't impower them and make them wealthier? If they had to take a massive pay cut with the rest of us would they have got on board? Why are we forced to sacrifice for them?

    America is already a 3rd world nation. It just has caught up to the reality it truly lives in.

    The credit line funding globalization at the exepense of the working class won't last forever.

    By Anonymous Anonymous, at 9:46 PM, February 12, 2008  

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