Home > Uncategorized > Labor has lost much in past four decades, and Fed threatens recent gains

Labor has lost much in past four decades, and Fed threatens recent gains

from Mark Weisbrot

This Labor Day, the vast majority of Americans who need to work for a living still have a long way to go before they recover what they have lost over the past four decades. The real (inflation-adjusted) median wage is only about 10 percent above what it was in 1979.

As economist Dean Baker has noted, we can also see part of this transformation of the United States into a more shamefully unequal society if we look at the distribution of national income between profits and labor. If not for this redistribution from wages to profits from 2000 to 2016, the average worker would have an additional $4,000 per year in annual income.

This historic redistribution of income and wealth was the result of choices made by our political leaders and decision-makers. They chose to maintain higher interest rates ― and levels of unemployment ― than necessary. They subjected workers to increasingly harsh international competition while protecting highly paid professionals and CEOs. They increased protectionism for patent holders, including pharmaceutical companies who charge tens of thousands of dollars for cancer drugs that would sell for a small fraction of these prices in competitive markets. They changed labor law so that unions’ bargaining power would be reduced to levels not seen for most of the twentieth century. 

The Trump administration claims that workers’ long night is over, as evidenced by the current headline unemployment rate of 3.9 percent; and that they are responsible for the historically low unemployment. But this reduction in unemployment is the continuation of an economic recovery that began under the Obama administration, and is overwhelmingly the result of the policy of the Federal Reserve, not of the president or Congress.

The Fed kept short-term interest rates near zero for seven years (from December 2008) and also created trillions of dollars during much of this period to push down long-term rates.

The Fed is the main determinant of the rate of unemployment; but what the Fed giveth, the Fed taketh way. The Fed began to reverse these policies in 2015; it has raised rates twice this year and is expected to raise them two more times before the year is over.

The Fed has had no valid reason for these interest rate hikes. The Fed targets an inflation rate of 2 percent, but its preferred measure of inflation is still at 1.9 percent. And inflation has been below target for almost all of the past nine years.

Most Americans don’t know this, but when the Fed raises interest rates it is intentionally slowing the rate of job creation, in order to make unemployment higher than it would otherwise be; and thereby putting downward pressure on wages. Since World War II, the Fed has caused all of the recessions in the US except for the last two (which were caused by the bursting of the stock market bubble in 2000, and then the housing bubble collapse in 2007).

Most immediately, the Fed threatens to reverse much of the gains in employment that we have made in the current economic expansion, even though real wages did not even grow over the past year. For the longer term, Trump and his congressional allies have moved to continue the march toward greater inequality: for example, with the tax give-away to corporations and the rich, Trump’s selection of anti-labor and right-wing judges for the federal courts, increasing inequality in education, and other policies.

Reversing labor’s losses over the past four decades will therefore require blocking the Fed from increasing unemployment (or worse, tipping the economy into recession) and then undoing some of the structural changes that have created such obscene levels of inequality.

See article on original site

  1. Prof Dr James Beckman, Germany
    September 2, 2018 at 3:25 pm

    Back to feudal society. Kiss thy master’s ring?

  2. September 3, 2018 at 1:26 am

    Is the Fed really the main determinant of the rate of unemployment, or is it the fiscal stance of the federal government?

    • Prof Dr James Beckman, Germany
      September 3, 2018 at 5:50 am

      Larry, I find a more direct connection with labor wages in the number of right to work states, meaning that unions may not require employees at firms with union contracts to be union members, among other things. That number is now 28. Of course, outsourcing of component mfg is probably as important, even across the street to non-union firms.

    • Calgacus
      September 3, 2018 at 7:12 pm

      Yes, Larry, that is nonsense. At some level I am sure Weisbrot (and Baker) must know it is nonsense, but this sort of idolization of monetary policy is something that economists of the past few decades have been completely brainwashed into. It is one of an indication of not really understanding the theory of monetary economics. There is some merit to what he says about after WWII except for the 1974 recession, where if you are seriously analyzing it, the oil crisis was more of a factor, as it caused the Fed to act as it did, forced its hand more than usual.

      Of course the Fed can (usually) spur recessions (temporarily) through interest rate hikes. But at times in the depth of a depression, ( The Great Depression, the begininning of the Great recession) interest rate hikes would be stimulative. Once upon a time economists understood that there were effects going both ways and that they would usually, but not always, cancel themselves out, especially in a longer time scale. No longer. Another instance of the same one-sided simplification to the point of nonsense is the derision by almost all economists of Turkey’s Erdogan when he says high interest rates are inflationary. In Turkey’s case Erdogan is right, they are high enough that this is clear. But the modern economist simply cannot accept this violation of unfounded dogma.

      • Prof Dr James Beckman, Germany
        September 4, 2018 at 11:03 am

        Calgacus, I am with you. I recall as a kid that families kept lots of dollars in savings’ accounts. In the 70’s, I believe, things changed so that my father kept his savings in a money market account where at night the funds were swept into an overnight “fixed rate” (12 hours or so). Wall Street was busting out all over, as the song says.
        In 1992 I attended a wonderful academic conference in Istanbul. However, I had to buy a fine suit to sit with the finest Turks, so I purchased a local product for 2.3 million Turkish lira as I recall. Interest rates at the time were similarly impressive. I purchased my carpets for $32 each, American cash, after sitting over tea for hours pleasantly negotiating.

  3. David Harold Chester
    September 3, 2018 at 9:25 am

    Does anybody even remember how Labor Day used to be celebrated?

  4. September 3, 2018 at 9:41 am

    The right wing govts are puppets of the wealthy corps and it has to stop . Bernie Saunders has the plan to do just that

  5. September 9, 2018 at 1:46 pm

    Banks and their friends in government and academia have a long history of suppressing working/middle-class. In fact, of suppressing and attacking any group that comes near posing a threat to bank profits. President Andrew Jackson said this on his decision to close the Bank of the United States.

    July 10, 1832

    A BANK of the United States is in many respects convenient for the Government and useful to the people. Entertaining this opinion, and deeply impressed with the belief that some of the powers and privileges possessed by the existing Bank are unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people, I felt it my duty, at an early period of my administration, to call the attention of Congress to the practicability of organizing an institution combining all its advantages, and obviating these objections. I sincerely regret that, in the act before me, I can perceive none of those modifications of the Bank charter which are necessary, in my opinion, to make it compatible with justice, with sound policy, or with the Constitution of our country.

    Every monopoly, and all exclusive privileges, are granted at the expense of the public, which ought to receive a fair equivalent. The many millions which this act proposes to bestow on the stockholders of the existing Bank must come directly or indirectly out of the earnings of the American people. It is due to them, therefore, if their Government sell monopolies and exclusive privileges, that they should at least exact for them as much as they are worth in open market. The value of the monopoly in this case may be correctly ascertained. The twenty-eight millions of stock would probably be at an advance of fifty per cent, and command in market at least forty-two millions of dollars, subject to the payment of the present bonus. The present value of the monopoly, therefore, is seventeen millions of dollars, and this the act proposes to sell for three millions, payable in fifteen annual installments of two hundred thousand dollars each.

    It is not conceivable how the present stockholders can have any claim to the special favor of the Government. The present corporation has enjoyed its monopoly during the period stipulated in the original contract. If we must have such a corporation, why should not the Government sell out the whole stock, and thus secure to the people the full market value of the privileges granted? Why should not Congress create and sell twenty-eight millions of stock, incorporating the purchasers with all the powers and privileges secured in this act, and putting the premium upon the sales into the Treasury.

    It has been urged as an argument in favor of rechartering the present Bank, that the calling in its loans will produce great embarrassment and distress. The time allowed to close its concerns is ample; and if it has been well managed, its pressure will be light, and heavy only in case its management has been bad. If, therefore, it shall produce distress, the fault will be its own: and it would furnish a reason against renewing a power which has been so obviously abused. But will there ever be a time when this reason will be less powerful? To acknowledge its force is to admit that the Bank ought to be perpetual; and, as a consequence, the present stockholders, and those inheriting their rights as successors, be established a privileged order, clothed both with great political power and enjoying immense pecuniary advantages from their connection with the Government. The modifications of the existing charter, proposed by this act, are not such, in my views, as make it consistent with the rights of the States or the liberties of the people.

    Is there no danger to our liberty and independence in a Bank that in its nature has so little to bind it to our country.

  6. Yok
    September 14, 2018 at 10:40 pm

    Raising rates is a double-edged sword. It does two blatant things: It increases inflation and the increases the flow of money to the wealthy and the powerful; it drives to bankruptcy the financially vulnerable and weak.

  7. September 16, 2018 at 6:57 am

    The golden rule (alternatively the Koch rule) applies. Those with the gold make the rules. Either change it or stop complaining about it.

    • Prof Dr James Beckman, Germany
      September 16, 2018 at 8:41 am

      Quite an appropriate remark, Ken, as the Koch’s are collecting enormous amounts of new money for the November election. Unless attractive candidates enter on the liberal side, the bad-mouthing from the right will win the day, I expect. If you have money then you mostly control the public dialogue these days.

      • September 16, 2018 at 11:20 am

        James, controlling public dialogue, and the “public” has a long history going back to Sumerians, and probably before. I could recite from memory several thousand examples. Many significantly more violent than how it’s done today.

      • Prof Dr James Beckman, Germany
        September 16, 2018 at 7:20 pm

        Ken, most of that control was exercised in relatively few public spaces. Now, everyone’s cell or computer is a public space, making control much more challenging, it seems to me.

      • September 17, 2018 at 6:37 am

        James, you are correct that digital technology has provided a vast array of new sites for public discourse and comment. Right now, it seems Apple, Samsung, Verizon, Comcast, Google, Facebook, Twitter, etc. are doing a damn good job of channeling that discourse 90% of the time. Sure, there are rebels, as there’ve always been. And the dark web creates a new and unique set of problems. Problems not nearly so insoluble as TV programs suggest, however. So far, autocratic governments have a high success rate in bending new technologies to their needs. Why should digital technology be different?

      • Prof Dr James Beckman, Germany
        September 18, 2018 at 9:52 am

        Ken, you have hailed it: big organizations control, whether on the public or private side. But was it not always so in the tribes, monarchies & churches of the world? At least the West has vast individual freedoms compared to some other parts of the globe as you are aware.

      • September 18, 2018 at 11:54 am

        James, Sapiens is being extinguished by the same genetic and cultural factors that favored its survival. Group cooperation and group creativity. Once Sapiens stopped being one creative and cooperating group and became multiple contending cooperative and creative groups, Sapiens increasing became its own executioner. How or is it even possible for Sapiens to become one group again?

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