Wednesday, June 15, 2011
SPONTANEOUS COMBUSTION RECOVERY?
First, get stupid Republican pet tricks out of the way. Recessions here and in Europe's second-rank economies (Ireland, Spain, Portugal) were caused by giving bankers more money than they could responsibly lend (Greece does everything crazy, not just banking). On an individual level a banker knows he is not going to bust the economy all by himself so why miss out on the millions in fees until bubble is bursts? The Republican answer to the bust is of course more tax cuts for the rich to flood the bankers -- and as little regulation of banker behavior as possible.
And don't forget to cut spending and raise taxes to choke the sinking economy. In every time and place inflation is what ends housing gluts and affiliated recessions by cutting prices painlessly (subjectively), bringing demand back in balance with supply. Inflation caused by deficits this year even somewhat ameliorates the long hanging deficit over the years. Zero inflation or deflation can mean a housing glut forever -- ask Japan. So much for stupid economic tricks.
When if and to ever America's Great Recession ends, our Great Wage Depression will carry on like nothing ever happened. Average income should double again over the next 40 years -- will the median wage grow only 20% again while the top tier -- linebackers, TV anchors and CEOs -- become as rich as Saudi princes (presumably the minimum wage wont drop in half in real terms as between 1968 and early 2007 -- it is a dollar below 1956 now!).
There are two kinds of labor markets in the OECD world: the kind that produce adequate political and economic strength for most people and the kind that do not. Wherever legally mandated, sector wide labor agreements are the rule the average person gets what they need because they rule. Where they are not the rule the average person is ruined politically and economically.
Socialism (Republican pet trick)? Keep in mind that sector wide agreements were introduced in Europe after World War II -- actually requiring Europe's welfare state to compensate for sector-wide's original purpose -- which was to keep labor's prices down – so Europe's industrialists could rebuild after the war. Guess what? What avoids the race to the top also prevents the race to the bottom (politically and economically). Again, every modern economy in which the average person does well, sector-wide bargaining is the rule; in everyplace it is not the rule the average person is lost.
In Japan the super secure half of the labor force pays for it with 60 hour work weeks. I got the impression the other half lives more like our illegals from the book "Japan, the System that Soured." Australia which has an odd judicial labor pricing system has seen union membership drop from 40% to 20% over the past 25 years. http://www.amazon.com/Japan-System-That-Soured-Japanese/dp/0765603101
I read in David McWilliams' (Ireland’s amazing popularizer) fabulous book – and elsewhere* – that inflation is what cures all housing bubbles at all times and in all places. Shifting back 15% of income to the "lower" 90% (some mess!) could possibly by my cab driver pure guess cause 30% inflation over X number of years as labor prices bump each other up. http://www.amazon.com/Follow-Money-David-Mcwilliams/dp/0717148076/ref=sr_1_1?ie=UTF8&s=books&qid=1309103892&sr=1-1
Doubling the minimum wage to $15/hr – giving half the American workforce a raise! – would add less than 3% inflation directly – easily computed. (Half the work force) 70 million X $3.25 average raise X 2000 hours + 7 million at or below the minimum (2009) X $3.25 X 2000 hours = $500.5 billion -- out of a $14 trillion (economy)/$500.5 billion = 2.8% direct inflation. * http://www.bls.gov/cps/minwage2009tbls.htm [This link timing out as I post this.]
50% of our workforce wants to unionize. Supermarket and airline workers would kill for sector-wide agreements. Sector-wide labor contracts seem to be the magic bullet that not only avoids the race to the top (as originally intended) but also ends the race to the bottom (politically and economically) = the perfect labor market -- there seems no other answer. When are our progressive economists going to start talking sector-wide bargaining up?
Best video by Robert Reich (a lawyer): http://www.youtube.com/watch?v=JTzMqm2TwgE&feature=player_embedded
Best article by Harold Myerson (a journalist): http://www.washingtonpost.com/opinions/using-german-ingenuity-to-fix-our-economy/2011/06/14/AGdRJVWH_story.html
Best book by Thomas Geoghegan (a lawyer): http://www.amazon.com/Were-You-Born-Wrong-Continent/dp/159558403X/ref=sr_1_1?ie=UTF8&qid=1309099936&sr=8-1
Check out video version of the book "Coming Collapse of the Middle Class" by Elizabeth Warren (a lawyer): http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html
Dean Baker (in 18th reply on his blog post -- most important info for America -- only accidentally ran into it years ago!) reproduced what he called "a slightly altered table from Gordon's paper *, showing income shares in 1972 and 2001" -- my percentage changes on the right.
0-20_______2.6%, _ 2.0%________- .6%__ -12.3%
20-50____ 16.0%, _ 11.7%_______ -4.3%__ -11.7%
50-80____ 33.7%, _ 27.2%_______-6.5%____ -7.4%
80-90____ 17.0%,_ 16.1%________ - .9%___ -
90-95____ 10.8%,_ 11.3%______ +_ .5% __+
95-99.0___12.2%,_ 14.8%______ +2.6% ___+ 3.1%
99.0-99.9__ 5.7%,__ 9.6%_______+3.9% ___+ 7.0%
99.9 -100__ 1.9%,__ 7.3%_______ +5.4%__ +12.4%
(see p. 84 of Gordon for similar breakdown of wage income)
4.9% loss of overall share meant 26.3% chop of 0-50 percentile share.
6.4% loss of overall share meant 14.5% chop of 50-90 percentile share.
Don't forget more family members working more hours for more years still ended in chops.