Why America’s Two Economies Continue to Drift Apart, and What Washington Isn’t Doing About It
Tuesday 14 December 2010
by: Robert Reich | Robert Reich's Blog | Op-Ed
America’s two economies are getting wider apart.
The Big Money economy is booming. According to a new Commerce Department report, third-quarter profits of American businesses rose at an annual record-breaking $1.659 trillion – besting even the boom year of 2006 (in nominal dollars). Profits have soared for seven consecutive quarters now, matching or beating their fastest pace in history.
Executive pay is linked to profits, so top pay is soaring as well.
Higher profits are also translating into the nice gains in the stock market, which is a boon to everyone with lots of financial assets.
And Wall Street is back. Bonuses on the Street are expected to rise about 5 percent this year, according to a survey by compensation consultants Johnson Associates Inc.
But nothing is trickling down to the Average Worker economy. Job growth is still anemic. At October’s rate of only 50,000 new private-sector jobs, unemployment won’t get down to pre-recession levels for twenty years. And almost half of October’s new jobs were in temporary help.
Meanwhile, the median wage is barely rising, adjusted for inflation. And the value of the major asset of most Americans – their homes – continues to drop.
Why are America’s two economies going in opposite directions? Two reasons.
First, big profits are coming from overseas sales of goods and services made abroad, not here. The world’s fastest-growing markets are China and India, whose inhabitants are eager to buy “American” products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.
Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.
Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.
In other words, American workers are losing even more bargaining power as a sizeable chunk of corporate profit goes into software and digital equipment that can do what people used to do – but more cheaply.
So what is Washington doing about all this?
Making the tax code more progressive so more Americans reap the benefits enjoyed by those at the top? Increasing the bargaining power of American workers? Forcing Wall Street banks to reorganize under bankruptcy mortgage loans that are dragging down the housing market? Expanding early childhood education, hiring more teachers, putting fewer kids into each classroom, and making higher education more affordable – so more working and middle-class kids can become tomorrow’s high-priced “talent”?
No. None of this. In fact, Washington is busily separating the two economies even further.
It’s extending the Bush tax cuts – the lion’s share of which go to the very wealthy; reducing the reach and rate of the estate tax; and giving corporations additional tax breaks for investing in software and equipment. Meanwhile, the states are cutting back on pre-schools, firing teachers, and yanking up tuitions and fees at public universities.
Oh, and yes, Washington is also extending unemployment benefits for the long-term jobless. Which is the least it can do, given that their ranks continue to swell.
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Comments
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Mr Reich, with all due
Wed, 12/15/2010 - 14:41 — FR Tothus (not verified)Mr Reich, with all due respect, you've generally told us THAT and HOW the "two economies" are diverging, but perhaps as someone schooled in the orthodoxy of the pseudo-science of economics, you are either unwilling or incapable of explaining WHY. Not that your edification will bring anything to the discussion that isn't already known. It's not a mystery:
"Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all."
(John Maynard Keynes)
"U.S. leaders have striven with much success to repress (1) the emergence of competing forms of production (socialist, collectivist, communitarian); and (2) competing capital formations (prosperous autonomous capitalist economies, or mixed ones, in emerging nations, and with FTAA and GATS, all public sector services except police and military in all capitalist countries. The goal is the Third Worldization of the entire world, including Europe and North America, a world in which capital rules supreme with no public sector services; no labor unions to speak of; no prosperous, literate, effectively organized working class with rising expectations; no pension funds or environmental, consumer, and occupational protections, or medical plans, or any of the other insufferable things that cut into profit rates."
(Michael Parenti)
Oh Say It Ain't So
Wed, 12/15/2010 - 15:12 — Jon Awbrey (not verified)Oh Say It Ain't So !!!
“The rich … divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made, had the earth been divided into equal proportions among all its inhabitants.”
— Adam Smith (1759), The Theory of Moral Sentiments, Part IV Chapter 1
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”
— Adam Smith (1759), The Theory of Moral Sentiments, Part I Section I Chapter I
http://wikipediareview.com/index.php?showtopic=23108
Having a hack as president
Wed, 12/15/2010 - 16:44 — Anonymous (not verified)Having a hack as president doesn't help.
Zuckerborg is President now?
Wed, 12/15/2010 - 17:50 — Jon Awbrey (not verified)Zuckerborg is President now?
@Jon Awbrey: Thank you for
Wed, 12/15/2010 - 17:55 — RoughAcres (not verified)@Jon Awbrey: Thank you for those quotes from the Father of Capitalism.
To note how far from his sentiments modern business has come, is to confirm we do not HAVE "capitalism" anymore; we have returned to "feudalism."
If this were a movie, the wealthy would be the Landed Gentry, the corporates, rival Princes, We the People as the Serfs; governments? The King's henchmen.
As for the identity of the King... perhaps the Man in the Iron Mask?
Revolution of some kind is coming....
Yes, a revolution of some
Wed, 12/15/2010 - 18:09 — Dave Morgan (not verified)Yes, a revolution of some kind is coming. But the news media better tell it straight, or the revolution will be butt ugly.
the system is out of
Wed, 12/15/2010 - 18:30 — Anonymous (not verified)the system is out of control. the corporations are international so the countries including the US have no control over them, they would just incorporate somewhere else. so the governments are on the run. no money--lots of liabilities--no control of the source of revenue.
A REVOLUTION? Yes, Jon and
Wed, 12/15/2010 - 19:20 — Cap'n Canard! (not verified)A REVOLUTION? Yes, Jon and Dave, you may be onto something ... I tend to agree, a revolution of some type. I am holding out for a revolution that would eliminate the need for the monetary system. Okay... that is a bit of a fantasy but it would solve the problem of needing banks that could just cheat us out of our accumulated wealth. I suggest that we shift from a Quantitative matrix(accounting, the bottom line) to a Qualitative matrix(is it useful? does it provide benefit?). But we're gonna have to wait until the Baby Boomers die off until that happens.
It is indeed more feudalism
Wed, 12/15/2010 - 20:04 — HG (not verified)It is indeed more feudalism than capitalism, but the problem is really monopolism, specifically, monopolism of the Earth and its resources, which is behind the inexorable concentration of wealth and political power mowing down democracy as we speak. The "law of rent" explains how and why, with increased production and productivity, the land-owning (including natural resources) class reaps almost all of the productivity gains of "progress" while the *average* wages of labor are pushed down to the level of mere survival (i.e. 80% of the globe in poverty). The result is then indeed very similar to feudalism, but the driving dynamic is the monopoly of land. SOLUTION? Land must be treated as common property. Make the State collect the economic rent of land, transferring all taxation OFF of labor and productive capital and ONTO land and resource value. This is all explained in Progress and Poverty by Henry George. You've never heard of it because real political economy was disappeared and replaced by the Chicago neo-classic pseudo-school of make-believe economics for the rich and super rich. We do indeed live in a real life Matrix. Take the blue pill, read P&P!
Why doesn't labor
Wed, 12/15/2010 - 20:19 — PM (not verified)Why doesn't labor participate in its own higher productivity? Because land rent (a forgotten economic term) collected via private property of the Earth absorbs all the gain. This is a functional distribution, not personal nor political, so you can't identify the bad guys until the wealth concentrates to such an extreme that it starts to look like it's too late anyway. But it's not too late. All we have to do is get behing candidates who have read Progress and Poverty by Henry George and can explain how and why we can nationalize land rent and liberate the true private property of labor in a simple tax transfer that will cut the legs out from under the monopolism that is destroying humanity.
Yes, Bubba?bubie, but are
Thu, 12/16/2010 - 00:32 — Anonymous (not verified)Yes, Bubba?bubie, but are you finally ready to admit that the administration in which you participated was one which perpetrated some of
the biggest outrages against social justice
(nafta, destroying the welfare system,
encouraging the health-care-pharma mafias)
we've ever seen? Since 1980 it's been all down hill,
a lot of you lot jumped on the downhill racer
bandwagon for a short ride and then jumped off,
while a lot of us got taken for the whole g.d. ride!
Since we have two economies,
Thu, 12/16/2010 - 14:17 — Worker who thinks, sweats and freezes for money (not verified)Since we have two economies, we should have two currencies. One based on actual labor and wages, and one based on financial finagling and corporate shenanigans. Then when Wall Street screws up again, it won't hurt Main Street so badly. We need two tax systems also. Let the people who can afford accountants deal with the IRS, and let the rest of us pay a flat tax or sales tax.
Oligarchy,plutocracy,
Thu, 12/16/2010 - 14:38 — jumpingjahosephats (not verified)Oligarchy,plutocracy, religious intolerance and control, feudalism, robber barons, working class subservience, militaristic nationalism...........the very things that drew people away from their homelands (ie. Europe) to America......have now become the essence of America. Greed works its evil trap again.
Everything has been said
Sun, 12/19/2010 - 12:52 — Anonymous (not verified)Everything has been said except the unspeakable option that lefties never consider because belief in the US is stronger than belief in God. Even atheists believe in the US. The US has become an idol. But what if there were no US?
1. In federal elections not-voting makes as much sense as voting since elections are never won by one vote but instead are decided by courts in close elections.
2. Not voting makes as much sense as voting since either candidate ends up doing whatever lobbyists tell him or her, moreover
3. Not voting makes more sense than voting because it does not lend legitimacy to the notion that democracy exists in the US. In fact not voting is morally required of anyone opposed to war because a vote for either party is a vote for unending war and murder. (individual states could not afford the military-industrial complex if their citizens knew how much they were paying for it)
If state by state, not voting were to catch on in federal elections, the percentage of voters not participating would go down. At some point, say 20% participation, the voters of a state could legitimately refuse to pay their taxes. No taxation without representation!
The US would disintegrate the same way the USSR did—people would no longer believe and would instead put their trust in the States. The US is too large.
Everything has been said
Mon, 12/20/2010 - 12:15 — Austin Loomis (not verified)Everything has been said except the unspeakable option that lefties never consider because belief in the US is stronger than belief in God. Even atheists believe in the US. The US has become an idol. But what if there were no US?
[...]
The US would disintegrate the same way the USSR did—people would no longer believe and would instead put their trust in the States. The US is too large.
I don't expect the individual states to become that free and independent, but I do see a breakup of the current nation as necessary for our survival; we've become too big to fail. In fact, I proposed in a comment just last month on TO [ http://www.truth-out.org/missing-a-vision-economic-possibility64817 ] that the US break up along the lines of Joel Garreau's "Nine Nations of North America" or Tim Kreider's "Kashistan" [ http://www.thepaincomics.com/weekly011010a.htm ].