Tuesday, August 29, 2006

Wage Story Not to be Missed

NY Times article

The Times yesterday had an oft-blogged-upon article about how wage growth in the US has not kept up with inflation nor productivity nor corporate profits nor non-wage income. This is an interesting phenomenon, just like the story that the middle-class in America is disappearing with globalization.

Workers take on this so far: Corporate profits and the non-parallel growth of wages might be due to the fact the the corporate welfare state has finally caught up with us. The US Government (and state and local governments too in many cases) have given tax breaks, special interest spending and otherwise have protected big businesses who are the political leaders' friends. This may have given a distorted economy, one where profits are up but not wages. Where income per worker is up (the definition of productivity) but this isnt getting to the workers because the income increases are due to rents (corporate capitalism; increased lobbying and governent spending) instead of efficiently- created market-oriented breakthroughs stiffled by the corporate welfare state which might naturally flow throughout the economy more readily in a less corporate world. Eg profits are supranormal and wages are normal, and/or crowded-out by the growth of the government-corporate axis in the economy.

An alternative view is that maybe the fact that wages arent keeping up with the growth of the economy is that 1) people are not wanting to work as much as they have been taking equity out of their homes to live on, 2) there is no doubt that Walmart and Chinese and Indian imports have drastically lowerd the costs of the necessities of life (what is the basket of goods that inflation measures? Sure seems to be missing the true picture. I mean clothes, cleaning supplies, (reasonable) cars, food, even CDs and DVDs are the same price if not less that they were 5 years ago and the quality better! 3) maybe people (except the urban underclass) are happy with their lives and any additional income just doesnt mean that much to them, 4) maybe the growth of the stock market over the last three years (thus those self-same rises in corporate profits which seem erroneously juxtaposed against 'wages' - are a good thing) - and the corresponding growth in people's retirement accounts, of which more than 50% of American's have, has also put current income less than a priority.

Same thing with how the middle class may or may not be disappearing. There is more to the picture than meets the eye. Yes the top 5% are getting more of the total wealth in society (and they are paying a greater percentage of the taxes too) and the lower 20% arent getting as wealthy as quick as the top 5%. Does this mean the middle is disappearing? Hard to say. But maybe as the rich get richer the poor get richer. But basically we have an underclass, the wealthy and the middleclass. I don't think that has changed. Do you?

Lastly, the Mises Institute captures the story quite well here.