NDN Blog

Debating The Bush Economic Record: Don't Believe Everything You Read About Wages

NDN have been going on about wages for some time now. We highlight the issue in the 3rd section of today's report - emphasing that flat wages and median income is the thin end of the administration's economic wedge. Today's papers, therefore, make heartening reading. Some revised labor stats seem to be suggesting that wages and benefits are growing strongly, says the Post. The FT is measured: wages are above expectations. Panic over? Not quite. Our current guest contributor Mark Thoma handily links to Paul Krugman's thoughts on the topic, in a discussion on the New York Times website:

So, are workers making out like bandits? Don't be surprised if you start seeing opinion pieces claiming that they are. But here's the thing: We have evidence from three different sources that tells a very different story. First, wages of non-supervisory workers, as measured by the Employment Survey, a survey of employers, are lagging slightly behind inflation. Second, median weekly wages, as measured by the Household Survey, a survey of (duh!) households, are lagging well behind inflation. Third, profits ... are growing much faster than G.D.P., which has to mean that labor costs are growing slowly.

We all want to see the pay packets of ordinary Americans begin to rise faster than inflation, something which hasn't happened under this administration. But don't think its happening just yet.

Debating The Bush Economic Record: Wall St and Main St Must Prosper Together

Bright is the light that shines from America, and yet for many those hopes have dimmed. If you look back on any measure of well being, the last 30 years have seen an America where a few have made a killing, while most people have taken a bath. Technology has forged ahead, and with it our absolute standard of living, but our economic policies have contributed nothing to this. We have lived on the vision of a casino America, where people hoped that the wheel of fortune would spin their way.

Elections, such as 2006 and 2008, often turn on short term fears and pains, but government hinges on vision, on how to set the course to ride the economic highs and lows. I am sure you will read Hale Stewart's sharp and accurate warning on the dangers of debt and the coming housing bust, and I hope you will read Mark Thoma's thoughtful look at how successful globalization and education are keys to an American restoration.

NDN have put together a tight package of numbers which hammer home the story that this has been a lost generation. People who work have fallen farther and farther behind. This is a trend that has remained in place largely unaltered, in recession and recovery, in contraction and expansion. There have been only a few brief moments of respite, the longest being under President Clinton, against the a slow and steady erosion of the place of work in American society. In 2004 Howard Dean made "take America back" his battle cry, General Wesley Clark warned us that "good people were losing good jobs, and that is the problem" and Senator John Edwards diagnosed the disease as "a war on work." This is an insight that unifies every elected politician running on a Democratic ticket: finance was prospering, but many ordinary Americans were being left behind.

I work in finance. It might seem strange for someone who is in finance to say this, but it is bluntly the truth: an economy where people can't work, won't work. Finance can grease what Adam Smith called "the great wheel of circulation," it can open the road to taking risks and reaping rewards, it can give the life of liquidity to great ideas that will change the way people live. All that is true, but financial people are fond of the expression "at the end of the day," and, well, at the end of the day, someone had to put in a real day's work. Finance without labor is a steering wheel without an engine, and investment without good government is a stick shift without a clutch.

If the world economy is not advancing, then other nations will catch up to the US, and wages will keep falling. The NDN report documents the sobering reality that for most Americans, there has been a long decline of the place of work in the economy. All of our economic pressures – from the federal budget deficit, to our dependence on oil, to our trade problems, to the immigration controversies that rage across the country – can be traced back to the two fundamental failures: the failure to constantly reinvent the American economy, and the failure to reinvest in an American work force which can be paid higher than the competition, because they have skills and abilities for which there is no competition. The last time it took a World War to create this work force, which transformed America from the cheap factory floor of Europe into the engine of the free world's economy. This time, let us hope, we can regain that edge without such a drastic incentive.

Because sooner or later, financial power moves to where the wealth is, and, as Adam Smith wrote over two centuries ago, the real wealth of a nation is the specialized labor and the capital that it uses to create products. The danger highlighted in this report is clear. On President Bush's watch we've had an economy which has grown, but has left most American's behind. Only by ensuring Wall St and Main St both benefit from our growth can we return to the type of prosperity we enjoyed during the 90s. Bottom line: Wall Street will remain on top only so long as you can get there from Main Street.

This is a guest contribution as part of NDN's ongoing debate about the economy. Read our new report The Bush Economic Record here.

Debating The Bush Economic Record: The Economics and Politics of Income Inequality - Part 1

In the 1990s the Clinton administration, with the enthusiastic support of economists, strongly supported free trade and globalization initiatives. In this vision of the world, globalization would produce large gains and lift the fortunes of all involved. For those left behind or displaced by globalization, education and retraining would be used to bring these workers into the global workforce so that they too could benefit from global trade. For instance, here is Bill Clinton in support of NAFTA in 1993:

In a few moments, I will sign three agreements that will ... create a North American Free Trade Agreement. In the coming months, I will submit this pact to Congress for approval. It will be a hard fight... And though the fight will be difficult, I deeply believe we will win ... because NAFTA means jobs American jobs, and good-paying American jobs. ...

The only way we can recover the fortunes of the middle class in this country so that people who work harder and smarter can ... is to adapt to the changes which are occurring. ... [We] cannot resist the winds of change that economics and technology and information flow have imposed... Our only realistic option is to embrace these changes and create the jobs of tomorrow.

But the promises made about globalization have not been realized by all, and a growing sense of economic insecurity has been the result. As I looked through this report from the NDN on Bush's economic record, Section 2 caught my attention because it reflects the disappointment many people feel over the unrealized promises made by Democrats about the benefits of globalization. The growing inequality in income illustrated in Section 2 of the report is emerging as a political issue and many people I talk to blame globalization (and often immigration too) for stagnating worker income and the growing income gap.

Other problems, such as the decline health care coverage and growing workplace insecurity, are also attributed to globalization. In order to compete in the global marketplace, the argument goes, firms are forced to shed benefit programs for their workers and to hold wages down. But is globalization really to blame for all these problems?

It would be fair to say that economists are rethinking globalization, in particular, how the gains from trade are shared both within and across countries given the experience of the last few decades. As part of this reexamination, the source of growing inequality is a key issue. More particularly, the debate is about whether the forces of economics arising from technology and globalization are behind the unequal gains we have experienced, or whether it is public policy such as union-busting, a falling minimum wage in real terms, tax cuts, and so on that are to blame. The answer is important because it dictates how public policy ought to respond to the changes we are seeing.

Those who believe growing inequality is due to the forces of economics rather than politics cite technology, in particular skill-based technical change arising from computerization and the spread of information technology, as the cause. Under this explanation, higher skilled workers are compensated for higher productivity and thus the change in the distribution of income, while regrettable, is the consequence of a fair reward for more productive labor. The solution then is to give all workers the skills needed to compete in the global economy. Thus, education is a key component in explaining and the inequality problem, and education is also seen as the best solution.

But other economists disagree strongly with the skill-based explanation for changes in income inequality and believe it arises largely from public policy favoring some groups over others. An email from Paul Krugman explains this position. Here's a shortened version:

I think it's really important to realize that we have only a modest amount of direct evidence that technological change is driving increased income inequality. That is, while there have been a few studies showing some connection between increased use of IT and changes in the wage structure, very little of the conventional wisdom that technology is the culprit is based on those studies. ... The point is that it's all too possible that we're attributing to technology rising inequality that may be largely due to hard-to-quantify political and institutional change.

There are several reasons to think that politics plays a big role. ... So what are the mechanisms? Unions are probably top of the list; I believe that there's a qualitative difference between wage bargaining in an economy with 11 percent of workers unionized, which is what we had in the early 30s, and one with 35 percent unionization, which is what emerged from World War II. That's discontinuous change, partly driven by a change in political regime. And the process went in reverse under Reagan.

An overall climate of public scrutiny may matter too, especially at the top of the scale. And don't forget that some taxes affect the pre-personal-tax distribution of income. Taxes on corporate profits went from a minor inconvenience before FDR, to a major source of revenue under Eisenhower, and back again.

The bottom line is that the view that rising inequality reflect forces beyond the reach of politicians may sound sensible, but it's actually a supposition based on very little evidence, and there's a lot of evidence on the other side.

I should note that these explanations are not mutually excusive, i.e. both technology and public policy could be at work, the question is whether public policy has played a large role in generating inequality. I, like Krugman, believe that it has. I'll post again a little later with a discussion of possible policy responses.

This is a guest contribution as part of NDN's ongoing debate about the economy. Read our new report The Bush Economic Record here.

Debating The Bush Economic Record: The Savings Crisis

For a quarter-century Americans' spending binge has been fueled by a declining savings rate and increased borrowing. The savings rate of American consumers has fallen from 12% in the early 1980s to -1.7% today. This means that, on average, consumer spending has risen about a half percentage point more than disposable, or after-tax, income per year for a quarter-century.

The fact that Americans are saving less and less of their after-tax income is only half the profligate consumer story. If someone borrows to buy a car, his savings rate declines because his outlays go up but his disposable income doesn't. So the downward march in the personal savings rate is closely linked to the upward march in total consumer debt (mortgage, credit card, auto, etc.) in relation to disposable income.

Let's go over these facts in a bit more detail. There has been a fair amount of debate regarding the official savings rate. The Bureau of Economic Analysis uses the standard economist's formula for savings - total income less all purchases. This formula essentially says savings is all the money left over after consumers buy their stuff. Various right wing pundits have disagreed with this formula. However, three independent studies by FDIC, Boston College and the Employee Benefit Research Group the all confirm the US has little to no savings to speak of.

While there is no definitive standard for how much a person needs for retirement, many baby boomers appear to have a net worth insufficient to meet basic retirement needs, according to some guidelines.9 In 2004, the median net worth for families headed by baby boomers between the ages of 45 and 54 was $144,700.10 However, these data are somewhat difficult to interpret, as wealth holdings in the United States are skewed toward the top 10 percent of families (see Chart link, next page).

The median family net worth was $1,700 for the lowest 25 percent of U.S. households and $43,600 for those in the 25th to 49th percentile. In contrast, those in the 75th to 89th percentile had median family net worth of $506,800, while the figure for those in the top 10 percent was $1.4 million.

These data do not apply only to baby boomers, however. The third Chart I link to below suggests that although many families have a fairly substantial amount of assets, a large number have few resources with which to supplement retirement income.

Here is the Central Finding from the Employee Benefit Research Group. It found that 63% of people have less than $100,000 saved for retirement. The paltry savings levels reported in the Flow of Funds report backs-up this fact. $100,000 is clearly insufficient to provide for income for a 20-year period, even with social security.

In case you are wondering, there are some great graphs of what is going on. Here's a graph of the US savings rate. Not only have Americans gone on a spending binge for the last 20+ years, we have also gone on a debt acquisition binge to pay for all of this growth. Notice how household debt has also increased over time. Also note how debt as a percentage of assets has increased. Finally, there is total household debt at the macro level relative to the disposable income.

That ratio currently stands at 108%.In other words, there is more total debt outstanding than total income. In addition, looking at the Federal Reserve's Flow of Funds statement indicates that each year for the last seven years US households have put on more debt than assets.Then there is the Federal governments propensity to use deficit financing.

In short, here the US economic model for the last 20+ years: increase the use of debt to encourage consumer spending, even if that means we spend today at the expense of tomorrow.The problem with this policy is at some point one or two things happen. Either debt saturation prevents entities from acquiring more debt to increase consumption, and/or entities have to start paying debt back. There is no magic rule for when there is too much debt - no percentage an economist can state that above said line there is too much and below there is too little. However, given the current levels at both the household and federal level, it is fair to say we are closer to that level than we were even 5 years ago.
Consumer spending is currently responsible for 70% of US GDP growth. However, debt is financing an ever-increasing percentage of those purchases at the expense of personal savings. Combine that with record high levels of debt, and it becomes obvious the old model can't work for much longer.

As we look beyond the next recession, we as a country need to develop a new model. The market will take care of some of this for us. People will start to save again simply because they need to. Consumers will look at their levels of debt and start to pay it down.

However, one very important things need to happen. We need to take a page from the Asian economic model and look ahead to the industries that will drive economic growth for the next generation. Then we need to develop those industries with a pro-active Federal policy. Nanotechnology, stem cell research and alternative energy all get my votes, but there are many other worthy causes. Focusing on new economic areas will increase incomes and create jobs and new industries. This is vital if we are to move away from a bubble/debt based model to an increasing income/job producing model.

This change will not be easy. As a country, we have grown use to easy answers to complicated questions. Rather than invest in new industries, we have gone on a consumer spending binge that has resulted n out current predicament. However, the change will be necessary as we move forward.

 

This is a guest contribution as part of NDN's ongoing debate about the economy. Read our new report The Bush Economic Record here.

New NDN Report and Debate: The Bush Economic Record

As Director of NDN’s Globalization Initiative I’m pleased welcome our readers to a new experiment - two days of economic debate on our blog. Today we are launching new report – The Bush Economic Record. It is a guide to the President's economic mistakes. More than that, it is a reason why this administration must be held accountable for its failed economic stewardship in November elections.

You can download a copy of the report in PDF format here.

Over the next two days we have invited various guest bloggers to debate the administration's record, to highligth the key economic issues facing our country, and to discuss the priorities for progressives to make our economy work for all Americans once again. Over the coming days you will see contributions from:

The debate about the economy is becoming more important by the day. Driven by the issue of stagnant wages and flat incomes, a new CNN poll this week showed that the economy is the single most important issue for most voters in deciding how to cast their vote in November. For the first time the economy is more important to voters than Iraq, terrorism and immigration.

The administration has tried, and will continue to try, to spin its dismal economic record. But it will fail because ordinary Americans know that they're not gaining ground under Bush when they manage their real paychecks and bills every month. Finally, the political establishment is also waking up to the fact, as this Washington Post editorial said over the weekend, that most Americans just are not benefiting from our current growth.

We hope that today’s report, and the debate on this blog over the next few days, will help to further focus attention on the current administrations poor economic choices, and what we as progressives need to do ensure our economy works for all American’s once again. And I encourage anyone reading this to take part, either by blogging the report or by offering comments to any of our guest posters.

The ABC Movie

I've been following the news about the upcoming ABC movie "Path to 9/11" closely.  I am an ABC alumni, having worked at ABC News in the 1980s.  I still know people who work there, and look back at that time as a lucky and wonderful period of my life. 

From everything I've read it is clear ABC blew it on this one.  I'm not sure how it happened, but the movie is sloppy and inaccurate; the way the network promoted it showed they understood the right would be happy and the Democrats unhappy; reports late last night indicate ABC's partner, Scholastic, the publisher of Harry Potter and other school materials, has pulled their "educational" materials about the film from their web site; and their refusal to allow government officials portrayed to even screen the movie in advance is bizarre and irresponsible, contributing to the sense that there is rightwing conspiracy behind the film.   

Given what has happened, and how important the subject matter is, the film should be pulled.  Instead turn the time over to ABC News to host live roundtable discussions with representatives of all involved to talk about 9/11, Iraq, and the future of American foreign policy.  Given all the controversy, the viewership of these programs would be huge, the public service extraordinary. 

The problem for ABC is that they using public airwaves to promote a private, or partisan, agenda.  If this was HBO, or even a commercial movie, this would not be as much of an issue.  But these are our airwaves not theirs; and they have to be held to a higher standard. 

Kudos to Media Matters, Think Progress, Working Assests, MyDD, NPI fellow Jennifer Nix and the many others who have led this very new style campaign against this unfortunate film. 

NDN in the News

NDN's Hispanic Strategy Center Director Joe Garcia is in Hispanic Business today discussing Florida's gubenatorial candidates possibly picking a Hispanic for lieutenant governor.

"For the first time we will see that candidates who win the primaries will have to seriously consider a Hispanic for lieutenant governor," EFE was told by Joe Garcia, former executive director of the Cuban American National Foundation and senior adviser in Florida for the New Democrat Network, which in 2002 launched an initiative to consolidate Latinos' connection with the party....Garcia said that the campaigns of both parties are working hard to win the Hispanic vote and even have directors of Latino affairs to make sure they do...."The number of Hispanic voters in Florida is almost 15 percent and it is the most changeable vote of any group in the state," he said.

 

Flynt Leverett on the Discredited Bush Foreign Policy

I had a chance to hear Flynt Leverett, former Senior Director for Middle East affairs at the National Security Council speak at the New America Foundation yesterday.  Expanding on his essay in the September edition of the American Prospect, he talked about the decision making he observed during the year he spent as the top advisor on the Middle East at the White House.  His critique was clear: this administration is not bumbling and incompetent in their approach to the Middle East, rather they have launched a great foreign policy experiment with disastrous consequences. 

Leverett talked about the decision to walk away from diplomacy, when countries like Syria and Iran were looking to cooperate and improve relations with the United States following September 11th and the defeat of the Taliban.

He also discussed the move away from establishing a credible position on the Israeli-Palestinian question, just as US leadership was needed to restore peace and improve US credibility in the region. 

These decisions and many others were rooted in ideology and the result is a less stable Middle East where the Kissinger maxim that the US should marginalize radicals and empower moderates has been turned on its head.  Today, US policy has actually empowered radicals such as Ahmadinejad in Iran, Hezbollah, Hamas, Assad in Syria, etc.

Leverett also disputed the Bush Administration line that more Democracy in the Middle East equals less terrorism, citing the three "poster children" for Middle East Democracy: Iraq, Lebanon and Afghanistan.  In these cases, forcing Democracy on societies not prepared for it has lead to more instability.

Finally, on a political note, I observed that Leverett never used the terms neo-conservative or neocon. Instead he referred to “Bush Foreign Policy.” I think this is smart, because it ties the discredited foreign policy to the increasingly discredited and unpopular president. Neo-conservatism did not exist as a governing philosophy before this President and it will soon go back to the Ivory Tower where it belongs. It is important that blame for the foreign policy debacles of the past six years falls squarely on the shoulders of this President, and not on a faceless ideology.

 

Immigration reform and the GOP - the shame of it all

In his Monday column this week Robert Novak hits the GOP hard for failing to pass a meaningful immigration bill:

"Immigration is the most melancholy element of a depressing Republican year. The Iraq intervention and its aftermath have hurt, and Republican inattention to runaway government spending has been deplorable. But immigration is the issue most likely to cause rank-and-file Republican voters to stay home on Election Day, and it may cost the party its congressional majorities."

As I wrote this morning, the failure of the immigration bill is a potent symbol of the failure of these modern Republicans to tackle the important challenges of our time.  From the right to the left all wanted to do something this year.  A good and sensible bi-partisan bill was offered.  The President supported it.  As did all 44 Democrats in the Senate, and most Democrats in the House.  A little bit of work - that thing called governing - could have brought everyone together to solve a vexing national challenge.  But they couldn't do it.  They couldn't find common ground in their own party.  

In the process the Republicans have angered both their own base, and the many immigrants who believed this President and his Party that would be different. 

So, in the great modern Republican tradition, when that governing thing doesn't work, what does one do? Politics.  Blame others.  Use TV ads to demonize your opponent.  Attack them for being with "the other."

Using immigration as a blunt weapon against an opponent is being tried right now in Rhode Island.  The National Republican Party, through its Senate arm, has been running an ad on behalf of Lincoln Chafee accusing his opponent Steve Laffey of accepting a Mexican ID in his town where he has been mayor.  The ad then says that the FBI has said that these IDs could be used by terrorists to get other IDs. 

What's remarkable about this ad full of brown faces and terrorists is that using this ID is common practice across the United States, and is sanctioned by the Treasury Department.  It is not all that unreasonable, as it is a government issued ID by our largest neighbor, and a friendly one to boot. 

Mexicans.  IDs.  FBI.  Terrorists.  I see. 

So Bush promotes sensible immigration reform.  His Party balks.  His Party runs ads equating immigrants to terrorists in a Republican primary.  He stays silent. 

Imagine what they gonna use against Democrats, who actually tried to work with him to pass the good McCain-Kennedy Bill.  Gonna be a difficult and troubling fall. 

Announced: AP Mobile Election Results

The Associated Press (AP) just announced a new mobile service covering election results:

"The service, called AP Mobile Election Results, features Crisp’s content management, delivery and application development platform and is designed specifically for the AP’s customer base, which includes newspapers and broadcasters.

"The mobile device is rapidly becoming the tool for mobilizing social and political audiences, and the delivery of on-demand election information has tremendous political, social, and commercial value to a wide variety of customers," said Boris Fridman, CEO of Crisp Wireless. "The Mobile Election Results service combines content from AP, one of the premier global news organizations, and an easily-customizable news service...

 

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