By Les Leopold, AlterNet
March 29, 2011
Do public sector workers earn more than private sector workers? Who cares? This boneheaded question has us fighting over the crumbs. (And the answer is no -- all credible studies show that when you account for educational levels, the total compensation packages are about the same.)
The real question is: Why have most workers seen their standard of living stall over the last generation?
The answer is both obvious and appalling. More and more of our nation’s wealth is going to the few, while the many have seen their real wages actually decline. It’s a disgrace.
It wasn’t always so. For more than a quarter century after WWII the fruits of America's productivity were shared with average working people, year in and year out. But what exactly was being shared?
What’s productivity and who gets its benefits?
Productivity is a crucial economic measure of the total output of goods and services in our economy per hours worked. It’s not based on pay levels, only on hours worked in the economy as a whole. In effect, it measures how much human labor power it takes to produce everything we have. It makes a real difference to our standard of living if it takes 10,000 hours rather than 1,000 to build a house.
Output per working hour, although imprecise, is the best way we have to measure our level of technique, organization, skill, effort and intellectual firepower. Sure, this measure has significant flaws because it doesn’t really measure our health or environmental quality. But it does indeed measure the material side of our standard of living. When productivity grows, a society has the means to solve many problems and the means to enhance working and living conditions…but only if the fruits of productivity are shared somewhat fairly.
Productivity and who gets it is the story of the last two generations of the American middle class – one that saw a tremendous rise in its standard of living, and one that saw its way of life stall and even crumble.
From 1947 to 1975, our output per worker hour grew by more than 75 percent. At the very same time, the real wages of the average worker rose by nearly the same amount. The rise of productivity and the rise in real wages turned our working people into the largest, most vibrant middle class in the history of the world. This dramatic upward movement in material conditions gave America its supreme bragging rights in the Cold War. No one could deny that democratic capitalism delivered the goods to working people, not just to elites.
Until it didn’t.
Neo-liberalism and the stalling of middle-class income
This upwardly mobile economy changed during the 1970s, and it wasn’t an accident. That’s when our nation’s leaders embarked on a series of policies that were supposed to break down stagflation and rebuild our economic miracle. We now call it neo-liberalism. That’s when we decided to unleash innovation through deregulation, especially financial deregulation. That’s when we lowered taxes on the wealthy. That’s when we pushed forward globalization. That’s when we stopped raising the minimum wage. That’s when we undercut the labor movement. All this was supposed to make the economy boom and reignite the post-WWII economic miracle.
These policies, not the blind actions of markets, broke open the cookie jar of productivity. And there was plenty in there to take: Since 1975, productivity increased by nearly 180 percent – meaning that we almost tripled what we could produce per hour of labor. But unlike the post-WWII period, it wasn’t shared. Here are the brutal facts:
- The average real wage of the non-supervisory production workers (which comprise 82.4 percent of total private non-farm employees) actually declined by 9 percent between 1975 and 2010.
- Meanwhile the top 1 percent saw their share of national income rise from 8 percent in 1975 to 23.5 percent in 2005
- More amazing still, the wage gap between the top 100 CEOs and the average worker jumped from $45 to $1 in 1970 to an unbelievable $1,723 to $1 in 2006
- Today after the crash, financial incomes are so enormous that in 2010, John Paulson, the top hedge fund manager, earned $2.4 million an HOUR (not a misprint), and his tax rate is less than yours
I like Ike
These statistics turned me into an Eisenhower communist. I realized that our great, conservative general and president stood for policies that would never have let our nation’s productivity cookie jar get robbed. Under Ike, those earning $3 million or more (in today’s dollars) faced marginal tax rates of over 90 percent. (Yes, there were loopholes that bought the effective rates down to 70 percent. But, what’s the effective rate on the rich today? About 16 percent.) And Ike ended the Korean War. And he named and took on the military-industrial complex, which today would probably get you impeached.
Of course, the '50s weren’t nirvana. Segregation and sexism haunted all areas of society. (And besides, we only had three TV channels and no Facebook.) But our standard of living was rising as were our expectations. We expected society to improve and this formed the basis of the explosion in social equality that swept the country, starting with the Civil Rights movement in the South under Ike’s rule.
But after Vietnam damaged our economy and social cohesion, Democrats and Republicans alike drank the Kool Aid of neo-liberalism. A few sips and you could believe that markets would solve everything. Sip some more and you realized that you didn’t need to govern at all. You only needed to get government out of the way (while also undercutting labor laws, removing trade barriers, permitting mega-mergers, destroying Glass-Steagall, passing tighter rules on debtors, etc.). Then out you go to make some real money. It the '50s, it was fabulous to become a millionaire. By the 1980s that was chump change. Unless you’re Bernie Sanders, becoming a politician put you on the fast track to Wall Street.
It’s not just that theft of society’s productivity is unfair. It’s also incredibly dangerous. We learned both in 1929 and in 2008 that when you combine financial deregulation with too much money in the hands of the few you get a casino, a bubble, and then a crash. In the most recent crash, the super-rich had so much capital they ran out of real investments in goods and services. So Wall Street came up with new exotic bets on subprime loans to soak up the excess capital. But the fundamental cause was that the super-rich walked off with years and years of productivity gains that should have gone to working people in the form of higher wages and benefits. Show me a worker who invests in synthetic CDOs.
Watching politicians pit public and private employees against each other is the cruelest joke of this entire crash.
First of all, there would be no state and local budget gaps were it not for the fact that the Wall Street crash destroyed more than 8 million jobs in a matter of months. In any rational world, the Wall Street gamblers would be paying reparations for the damage they’ve caused, rather setting record profits based on our bailouts.
Second, the richest hedge fund honchos are the glorious beneficiaries of a tax loophole that allows them to pay a maximum federal rate of 15 percent instead of 35 percent. Closing that loophole on just the 25 richest hedge fund managers produces twice the revenue as does Obama’s wage freeze on two million federal employees.
So join me in waving Chairman Ike’s little red book. Close the hedge fund loophole and jack up the top income tax rates – way up to where they belong. Raise the minimum wage and index it permanently to inflation. Invest in infrastructure and education to put our people back to work. And stop wasting our resources on war and weapons that no one needs, or on wasteful arguments about how many teachers and cops to fire.
Ike was a staunch capitalist and usually believed in the invisible hand of the market. But he wouldn’t be letting it give us the finger.
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