Matt Taibbi’s articles in Rolling Stone and his blog are essential reading for those wanting to know about the financial shenanigans that have rocked the country, and the excesses of Wall Street executives.
In a blog post with the above title, he provides yet another example of both aspects.
This is something I wrote over a year ago on Pharyngula:
The most important promises used to justify capitalism are that your children will have a better life than you do, and in John Kennedy’s famous words, “a rising tide lifts all boats,” meaning everyone benefits from the accumulation of capital. These promises ring hollow in a period in which the relative position of the working people of the United States is declining and its ruling class is able to appropriate an increasing share of the national income. This pattern of accumulation and appropriation has become evident to many Americans and this awareness is beginning to affect political consciousness.
Today, people worry that their children will not enjoy the same standard of living that they have. They know that the benefits of growth are going overwhelmingly to the wealthy and not to working people. The statistics support such an understanding. For a quarter of a century, from 1980 to 2004, while US gross domestic product per person rose by almost two-thirds, the wages of the average worker fell after adjusting for inflation. Over the three decades from 1972 to 2001, the wages and salaries of even those Americans at the 90th percentile (those doing better than 90 percent of their fellow citizens) experienced income gains of only 1% a year on average. Those at the 99.9th percentile saw their income rise by 181 percent over these years (to an income averaging almost $1.7 million). Those at the 99.99th percentile had income growth of 497%.
From an economic standpoint what has happened is that the link between productivity and wages has been broken. No longer does economic growth mean increases in the real earnings for the working class as their productivity rises. This was evident through Clinton’s last term when between 1997 and 2001 the top 10% of US earners received 49% of the growth in real wages and salaries; indeed, the top 1% got 24% of the total while the bottom half of workers received less than 13%. This trend is of longer duration. Based on a somewhat different calculation the share of income going to the top .1% quadrupled between 1970 and 1998 at the expense of working-class earners.
Inequality was growing in most of the rest of the world too; but the US led among the richer nations; and unlike most others that offset market inequality though government intervention, the US has not done so. For working people the issues are not simply the stagnation of real wages and growing inequality but the worsening insecurity that permeates many aspects of their lives as labor market conditions change and government abrogates more and more elements of the social contract.
Despite globalization, manufacturing output is not declining in the US. It’s been expanding, growing faster than the rest of the economy in recent years. It’s manufacturing employment that is shrinking.
It’s at its lowest level in more than half a century. Between 2001 and the spring of 2006 worker hourly productivity rose by 24% so fewer workers are needed to produce more output. But output has not been rising as fast as in the past. This is not only because of greater global competition but also slower global growth in demand. If demand had increased at levels seen during the early post–Second World War era, millions of additional jobs would have been created in manufacturing for US workers. Manufacturing jobs are especially important for those with the least education. Men with less than a high school education saw their wages fall in the 1980s in real terms by 20%. From 1979 to 1992 real yearly wages for male high school dropouts fell by over 23% while high school graduates with no additional education experienced a fall in real wages of 17%. There was a large expansion of temporary and part-time work.
Every three months 7% of all jobs are destroyed and roughly the same number are created. In a typical year a quarter of all jobs disappear. The Bureau of Labor Statistics tells us that in 1983, men between the age of 45 and 54 held jobs on average for 12.8 years but by 2004 for only 9.7 years. Jobs are now less secure for white-collar workers as well as in blue-collar occupations.
The layoffs have been in big companies, which tend to pay better and to offer benefits. It is not of course that things were great in the 1980s. During that decade, 13% of Americans between 40 and 50 years of age spent at least one year living in poverty, but by the 1990s, 36% did. Mobility has also declined. Social mobility is not as likely in the US as in Germany, for example.
The true cost of job loss must be measured not just in money as economists do in their calculations. For many people there is a spiral pattern in which layoffs lead to not only financial insecurity but to feelings of powerlessness and hopelessness, depression, sleepless nights, headaches, chronic stomach aches, and fatigue which can cause lasting harm.
Even after getting work some people have trouble talking to the boss and dealing with job demands. The damage done by job loss, even the threat of job loss, along with the worries about how people will live after they are no longer able to work, or if they have a serious illness how they can pay for the doctor and a hospital stay, produce anxieties that permeate working-class existence. There is a rise in escapist pursuits as the economy produces greater uncertainty; the growth of gambling addiction is one example. By the start of the 2000s, Americans were spending more on gambling than on theme parks, video games, spectator sports, and movie tickets. The most desperate tend to risk the most. Households with incomes under $10,000 a year spend three times as much on lottery tickets as those with incomes of more than $50,000. There is, however, an important psychological disconnect between harsh economic realities, escapist avenues, and the ideological interpretation most working people adopt to preserve their sense of worth and well-being. Credit card debt ensnares a large part of the working class. In 2004, 1.6 million people filed for personal bankruptcy, twice the number of a decade earlier, and half of those filed after a major medical expenditure. Other prominent causes of debt were divorce and job loss.
On the whole, life grows ever more insecure for working people. Capital’s share of all corporate income is the highest and the compensation of employees is the lowest that they have been in twenty-five years. Moreover, capital income is more concentrated than it has ever been. As the profit share went up, the CEO’s share of both the total wage bill and of corporate profits dramatically increased. By the mid-1990s CEO pay was about 5% of corporate profits. In 2003 their share was 10% of all profits. The percentage available for labor’s share decreased.
In the 2006 holiday season the top 20 Wall Street firms together paid out an estimated $36 to $44 billion to their employees. The bulk of it went to those masters of the universe who were restructuring employment prospects for US workers and extorting concessions from workers to finance debt. From 2000 to 2006, all 93 million American production and nonsupervisory workers had real earnings increases of less than half of the combined bonuses awarded by the top 20 Wall Street firms for just one year.
These are disturbing developments to many Americans, but have they shaken the powerful hold of individualism on peoples’ psyches?
Hundreds of national polls confirm that Americans express optimism regarding their own life chances and those of their children. They are reluctant to describe their own circumstances in negative terms even as they tell interviewers that “people like them” are doing poorly. While they say that education and hard work will help people get ahead they also report anxiety about outsourcing, plants closing, permanent jobs being replaced with part-time and contingent work, the lack of career opportunities, and fear that if they lose their job they will only be able to get one with lower pay and no benefits. Americans are frustrated that their incomes are not keeping up with the cost of living and that they are being squeezed. They’re critical of corporate greed and dishonesty. They want the government to call these corporations, especially pharmaceutical and oil companies, to account. They’re worried that things will not get better. But they are not, in great numbers, hostile to the system. They express faith in the American Dream and continue to believe that individuals can overcome obstacles. A majority envy the rich and famous.
Data are from Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto, The State of Working America, 2006-2007 (Ithaca: Cornell University Press, 2007).
Needs a better title. Like ‘Guy who stole your house rents entire hotel for his princess’s party’. I hear there may be protests tonight
Mano, I apologize for usurping your blog with my long economic lectures.
No need to apologize. I appreciate it when people contribute real knowledge to a discussion.
‘Tis, the more you spread your knowledge, the better. Mano was linking to another explanation; you provided your own. We are all the better for both. No need for apologies!
‘Tis Himself, OM, awesome as usual. I actually remember that post, and I probably have it in a text file on my storage drive. I’ll read any economic wall of text you post.
Thanks, Mano Singham, for the link. I don’t read enough Taibbi.
@Tis:
Nice article. I find myself in disagreement with:
Although the profits and shenanigans by those two industries are quite outrageous, at least they add value to the economy (manufacture of useful products and extraction of a required resource), whereas, IMO the real villains, the financial sector, extract value from the economy and pass it upwards to their executives and, to a lesser extent, their shareholders.
The only value added by the financial sector is facilitating IPOs for manufacturing/extraction/service industries and originating loans for large item purchases. Everything else (stock trading, derivative manufacture and trading, &c.) just transfers wealth from the productive sectors of the economy.
So apart from raising capital & facilitating cash flow for manufacturing companies, what about financing pension schemes, buying Sovereign debt (they’re what’s keeping your country afloat if you are running a deficit), backing up your insurance policies?
When it operates properly the financial sector is the oil in the global manufacturing machine -- unfortunately as a sector it seems particularly prone to abuse, leading to the impression that it is a parasitic edifice leeching wealth from the world; with adequate oversight and regulation we need the financial sector, but could do without the culture of recklessness and short-term grasping that certain of its members have been allowed to indulge in.