In his speech last week President Obama made a very standard explanation of the Fordist argument:
Just a little context here — in the period after World War II, you had a growing middle class that was the engine of our prosperity. The economy did well in part because everybody was participating. And whether you owned a company, or you swept the floors of that company, or you worked anywhere in between, America offered a basic bargain: If you work hard, then you will be rewarded with fair wages and benefits. You’ll have the chance to buy your own home. You’ll have the chance to save for retirement. You’ll have the protection of decent health insurance. But most of all, you’ll have the chance to pass on a better life to your kids.
For a more complete exposition on “Fordism” see here or one of my many posts in which I’ve touched on the subject. The term was coined by Antonio Gramsci and refers to a form of technocracy consisting of a set of compromises among big business, organized labor, and government in which business pays higher wages, income inequality is accepted, and labor remains peaceful with the whole shebang overseen by a benevolent government. That compromise has broken down under the pressures of globalization, technology, the sheer pace of economic affairs, now far beyond the ability of any government to control, and, frankly, greed, not merely on the part of business but on those of labor and government as well.
Like most other commentators, the president described the problem but doesn’t really present a solution.
I think that income inequality is a problem, too, for all sorts of reasons. For one thing, the America of today really doesn’t look a good deal as I expected it would when I was twenty and not in a good way. When I was twenty, most of America’s wealth and income, the overwhelming preponderance, were in the hands of the middle class. Now most of both wealth and income are mostly in the hands of the wealthiest Americans.
My concerns are somewhat different than those of most people who remark on the subject. I don’t really care how much Tiger Woods, Johnny Depp, or even Warren Buffett earn, at least to the extent that they earn what they do based on their own efforts without government subsidies. The earnings of the top 1% of income earners is just about the same as the income of the next 9% of income earners, the top 90-99%, and an astounding proportion of those earn what they do as a consequence of government subsidies. What I care about is rent-seeking and its consequences.
The highest earners in the healthcare sector, not just the half million physicians but the millions of technicians, administrators, and so on who are in the top decile of income earners derive two-thirds of their income from the government at one level or another. That’s even more true of the defense sector.
We are continually told that only swift government action saved the banking sector in 2007 but that means that the multi-million dollar incomes that were saved were dependent on that government action, too.
The list goes on and even includes some teachers, police officers, firefighters, and other civil servants. Needless to say, their income is derived from tax revenues. Unless your concern about income inequality to the Tiger Woodses and Warren Buffetts or the world, an enormous amount of income inequality is a direct consequence of government policy.
I also see no way that you can import millions of uneducated, low skill workers into the United States and not have increasing income inequality, not just as a consequence of those workers themselves but due to the effects of those workers on the lowest wage native born workers. Warehouses full of treatises on the effects of immigration on income have been written and there’s not a lot of agreement but there’s one thing there is agreement on: adding low wage workers depresses the wages of other low wage workers even farther.
And then there’s China. Our trade policy with respect to China in particular has had the effect of increasing income inequality here at home both by increasing the earnings of the highest income earners and decreasing the wages of the lowest income earners and even the middle income earners.
The president’s strategy for addressing the problems of income inequality seem to rely heavily on education and infrastructure spending. We might get more bang for the buck by reconsidering some of our perverse policies.
Why would the power elite want to give up the high disemployment and low wages from which they so greatly benefit?
Who isn’t involved in rent-seeking to some degree, at least indirectly? Am I, since I sell books into school systems? Are you if you consult for companies that are in the health care field? How far does it go? We’re all involved with government, and obviously that’s not going to end. The government will never be out of health care, let alone defense, but it obviously goes way beyond that, so aren’t you basically complaining about gravity?
Tiger Woods, Johnny Depp and Warren Buffet? Interesting choices.
I’d look more to CEOs who pay themselves hundreds of times what they pay their employees. That would be the sheer greed you’re talking about, and no there is nothing like it in labor or government, at least not in terms of its overall impact or its corrosive effect. It’s absurd to play “both sides do it” when you can’t find me any significant numbers of folks from labor or government who are in either the 1% or the 10%.
CEOs and their boards decide they absolutely need to make 50 million dollars a year while their employees can’t afford to feed themselves on a 40 hour a week job. Let’s cut the b.s., here, that’s the issue. That’s what we’re talking about, not some labor organizer or House member.
If you want to include someone like Depp in that you’d need to look at what he pays his own employees. (I have no idea.) Because any pay he gives up for his acting does not, sadly, go to the guys at craft services or to the crew on a movie, it goes into the pockets of Rupert Murdoch and the boards of Disney and Warner and Paramount, while those boards can actually give up a few bucks and pay the grunts a bit more.
As for Warren Buffett, he’s joined the Bill Gates pledge to give away 99% of his wealth when he dies.
And yet the problem is a black athlete, a liberal actor and a Democrat philanthropist. Please.
Sure. I picked them because they’re the most highly compensated individuals in their fields. No other reason.
And, yes, of course government will always be in defense and healthcare. That doesn’t explain why wages in those areas have outstripped so many others. “There’ll always be rent-seeking” is certainly true. I don’t see how that equates to “we’ve always got to pay huge wages in those fields”.
BTW, if you walked down the street and asked the first ten people who actually knew who Warren Buffett is who he is I’ll bet a shiny new dime that not one of them would say “Democratic philanthropist”.
BTW, if you walked down the street and asked the first ten people who actually knew who Warren Buffett is who he is I’ll bet a shiny new dime that not one of them would say “Democratic philanthropistâ€.
Most people don’t even know the name of the VP, let alone someone like Warren Buffett, and what he would be known for.
He’s known for his long time mistress, not giving a damn about his native Omaha, creating and abusing monopoly power through government and shameless self promotion claims that he does not actually practice but is gobbled up by the naïve. Oh, and he will give away all his money…………when he’s dead of course.
CEOs and their boards decide they absolutely need to make 50 million dollars a year while their employees can’t afford to feed themselves on a 40 hour a week job. Let’s cut the b.s. here, that’s the issue. That’s what we’re talking about, not some labor organizer or House member.
The problem is power, specifically the enormous disparity between the power of capital versus labor. In a slack jobs market, which we have deliberately maintained for over three decades, workers do not have the necessary bargaining power to secure reasonable wages. Millions of unemployed people desperate for work means employers can fire and replace any worker who gets uppity and refuses to remain on their knees.
The best and most easily employed solution is to tighten the labor market until businesses must make jobs more attractive to retain their existing workers and to hire new ones. It is lack of employment which rests behind low wages and poverty. The entire reason for failure of Johnson’s Great Society was because it was based on the assumption the problem with poverty is poor people; they lack drive and skills, have bad attitudes, etc. It’s a moralistic argument, the exact sort we hear today from politicians, economists and certain New York Times columnists who bemoan the lax morals of the vulgar poor.
Keynes said of the Great Depression that the economy was experiencing “a magneto problem”, identifying the issue as a technical malfunction rather than a mass character flaw on the part of the destitute. Full employment is simply a technical adjustment which will solve much of the inequality problem on its own as businesses find themselves directing more incomes toward wages and away from profits. Unfortunately our “leaders” continue insisting that neo-liberalism is written into the fabric of the universe and There Is No Alternative to what we have now.
Ben:
You often irritate me on foreign policy questions. Although I hope that’s disagreement among friends, as I hope the same between Dave and me. But I have to say I am running against the usual current in that as I age I’m coming more and more to the Left on economic issues.
I have an instinctive dislike of conspiracy theories, but I’m coming increasingly to accept that there is in fact a conspiracy of the rich, of the entitled, of their bankers, of their kept politicians, all arrayed against the working man. I can’t actually believe that the phrase “the working man” is coming from me, but somehow the Libor scandal – scarcely remarked upon by the media – pushed me over the edge. There is a conspiracy of the rich to bend the working man over and give it to him good and hard.
If we don’t do something about income inequality in this country there will be bombs going off. And while I will sincerely condemn the violence, I’ll understand it. When a wealthy, nearly elderly man with a family reaches the point where he’ll “understand” a bomb going off at Chase or Goldman or whatever tacky gold-plated Arkansas hole the Walton family inhabits, then income inequality has become a serious problem.
This needs to be addressed, and it won’t be a matter of doctors earning less, it will be the bankers and the CEOs. It’s not about actors or athletes or Warren Buffet, it’s about men who sit in board rooms voting themselves eight figure pay-offs while their employees can’t afford to feed their families.
Dave:
The problem is not athletes or actors. Don’t insult my intelligence by pretending those were not strategically chosen exemplars. If we’re talking income inequality and the social consequences of same, we both know that working people are neither affected by, nor angry at, Johnny Depp. (Unless it’s over that whole Lone Ranger thing.) They may be pissed off at their doctors, but the real resentment is toward those who are at the top and are directly connected to those at the bottom.
I think Ben got at the big problem, which is the concentration of power in the hands of very few people. Political power and investing power. By a group whose interests are very different than the rest of us. Next, it excludes a lot of people from the economy. Some guy out there with the next great invention or great company wont have the resources, which typically come from family , friends and loans unless he comes from the top 5%-10%.
I am not sure that there is a practical solution. We have an international labor glut. The return on capital is high, and those who have the capital have used their influence to make sure that the taxes on their returns remain low. The wealthy own one party and have a lease on the other. As a result, I expect that we will continue to see less and less of the returns from productivity going to labor. My one caveat, and a possible ray of hope is that we are at least concerned about health care costs. Rather, half of us are. If we can keep the ACA, then we have a framework to reduce costs, especially if the GOP decides to participate.
Steve
@Michael,
I happen to like you even though I think you’ve leapt into the abyss on national security. Expecting other people to have ideas identical to mine would be dumb and disrespectful of their individuality. Plus I have to acknowledge that I might be wrong on anything at any time; I’ve certainly made enough mistakes in my life to demonstrate that.
I don’t think you need to call what’s happening a conspiracy. If you look just a little below the surface I think you’ll see the current power elite are rather open about what they’re doing. Their lackeys tell us every day that job insecurity and poverty-wages are a wonderful thing and we have no choice anyway so shut up. They tell us we need to be “competitive”, which means lower standards of living in the U.S. The corporatized state we live in endlessly bombards us with one version of this or another, so it’s more a matter of brainwashing people into eagerly accepting a beat-down and unfortunately it has worked. No one ever seems to go one step further and ask how a poorer society will improve our lives or let us live in some economic security. If you do you’ll find the lackeys have no answer.