Kevin Drum explains what has to happen to restore the economy:
One way or another, there’s really no way for the economy to grow strongly and consistently unless middle-class consumers spend more, and they can’t spend more unless they make more. This was masked for a few years by the dotcom bubble, followed by the housing bubble, all propped on top of a continuing increase in consumer debt. None of those things are sustainable, though. The only sustainable source of consistent growth is rising median wages. The rich just don’t spend enough all by themselves.
The flip side of this, of course, is that rich people are going to have to accept the fact that they don’t get all the money anymore. Their incomes will still grow, but no faster than anyone else’s. …
But … but … but … that’s class warfare! (To be fair, so far I haven’t seen any right-wing reactions to this post.)
How do we make this happen, though? I’m not sure. Stronger unions are a part of it. Maybe a higher minimum wage. Stronger immigration controls. More progressive taxation. National healthcare. Education reforms. Maybe it’s just a gigantic cultural adjustment. Add your own favorite policy prescription here.
This isn’t just a matter of social justice. It’s a matter of facing reality. If we want a strong economy, we can only get it over the long term if we figure out a way for the benefits of economic growth to flow to everyone, not just the rich.
In other words, “spread the wealth around.” See also Paul Krugman and Tim F. at Balloon Juice.
To get the economy moving again, we need to find ways to get more cash into more hands, so that more people go out and buy stuff, which increases demand for goods and services, thereby creating more jobs and growing the economy. This is so obvious one would think even Jonah Goldberg could figure it out. Yet, even as I keyboard, no doubt conservative think tanks are cranking out somber-sounding white papers presenting tortured and historically revisionist arguments that paying workers more money is bad for workers (see, for example, George Will, no doubt working off notes he got from the Heritage Foundation).
At the Washington Post, Harold Meyerson sings the praises of the UAW and discusses their role in elevating the middle class —
… by the early 1950s, the UAW had secured a number of contractual innovations — annual cost-of-living adjustments, for instance — that set a pattern for the rest of American industry and created the broadly shared prosperity enjoyed by the nation in the 30 years after World War II.
The architects did not stop there. During the Reuther years, the UAW also used its resources to incubate every up-and-coming liberal movement in America. It was the UAW that funded the great 1963 March on Washington and provided the first serious financial backing for César Chávez’s fledgling farm workers union. The union took a lively interest in the birth of a student movement in the early ’60s, providing its conference center in Port Huron, Mich., to a group called Students for a Democratic Society when the group wanted to draft and debate its manifesto. Later that decade, the union provided resources to help the National Organization for Women get off the ground and helped fund the first Earth Day. And for decades after Reuther’s death in a 1970 plane crash, the UAW was among the foremost advocates of national health care — a policy that, had it been enacted, would have saved the Big Three tens of billions of dollars in health insurance expenses, but which the Big Three themselves were until recently too ideologically hidebound to support.
That last part is concrete proof that Ayn Rand was an idiot.
Over the past several weeks, it has become clear that the Republican right hates the UAW so much that it would prefer to plunge the nation into a depression rather than craft a bridge loan that doesn’t single out the auto industry’s unionized workers for punishment. …
…In a narrow sense, what the Republicans are proposing would gut the benefits of roughly a million retirees. In a broad sense, they want to destroy the institution that did more than any other to raise American living standards, and they want to do it by using the power of government to lower American living standards — in the middle of the most severe recession since the 1930s.
As they say, hammer, nail, head.
Exactly how much of this the average worker understands I do not know. I think a lot of people who are opposed to the auto industry “bailout” don’t understand how their own jobs and incomes might be affected if Chrysler or GM disappear.
But see “The case of the vanishing GOP voter” in today’s Boston Globe. At the very least, the Right is no longer connecting with people the way it used to.
You are so right on.
…recent polls would suggest that the average worker doesn’t understand this at all. A shocking number of respondents to some of these polls even agreed with the proposition that bankruptcy would either do no harm to or would benefit the economy. This suggests that long-held beliefs about inferior quality and poor management decisions by the Big Three occupy such a large portion of their brains that there isn’t any room for widely-reported concern by Toyota, Honda, and other off-shore manufacturers about the impact of a GM or Chrysler bankruptcy on their parts suppliers or any understanding of what effect the failure of those suppliers would have on the larger economy…
It amazes me that Shelby, Corker & McConnell are so blind that they don’t see their own states would be devastated if they let the Big Three go bankrupt. No state in the nation would be immune from the fallout and no community would escape the negative consequences. This is perhaps the ultimate expression of the Republican reliance on short-term economic thinking that has led the economy to disaster.
First off-I love reading your insights, Barbara.
I am a small business owner in Colorado. A minimum wage bill was passed two years ago which brings a cost-of-living increase each year. While I’m generally not against minimum wages, the retail margins are so low in today’s market that mandatory wage increases (wages are my biggest expense) takes away my ability to set myself off from the other businesses and attract better employees, because the worst dingbat expects more than minimum wage for minimum effort. And, if you are a employer like my friend, who converted her hamburger shop to a Subway, you have four teenagers all making $8 an hour to stand there and do low skill jobs. That’s a lot of sandwiches to sell in a small town every single day to pay these kids.
And even worse: minimum wage does not even cover living expenses in most communities: $7.75 x 160 hr/mth = $1240/month.
I believe the answer lies in a direction other than minimum wage because to bring these people up to a level where their spending is actually significant is going to be several dollars more per hour than that, and I just don’t see the Subway being able to pay them $11-$15/hr to make a part of a sandwich without significantly raising the prices. This is not core inflation, but an inflation that directly affects the minimum wage workers themselves, since they like to eat fast food, too.
This argument has a long history. Aristotle – and many that followed after him – said that a requirement for a vibrant democracy is a strong middle class. Republicans see real democracy – with its ability to expropriate their wealth, power, and privilege – as the real threat. Destroying the middle class destroys democracy – a twofer.
The founders of this country wrestled with this issue, and concluded this inconclusive argument, that the rich will always have an edge – the lower classes will never be able to completely take over the government to expropriate the wealth of the elites.
I had no idea the UAW was so far sighted, back in the day. It makes sense, Port Huron is just down the road from Motor City.
It amazes me that Shelby, Corker & McConnell are so blind that they don’t see their own states would be devastated if they let the Big Three go bankrupt.
Before the economic downturn, I read that foreign auto companies were planning to build 18 non unionized plants in the South, with lavish taxpayer subsidies. These Southern senators are basically pimping for the foreign companies, and probably see the devastation of the Big 3 as someone else’s problem, and a gain for their own position.
Glad someone else thinks Rand was an idiot.
Ah, American exceptionalism keeps rearing its ugly head. Every laissez-faire economy (since Smith invented the thing in 1776) has flopped taking the health of the entire country down with it, but no matter, America will make it work. Not.
So 70 percent of our economy is driven by consumerism and Repubs think we’ll be just fine economically if we eliminate that 70 percent by turning them into ex-consumers? Brilliant.
“One way or another, there’s really no way for the economy to grow strongly and consistently unless middle-class consumers spend more, and they can’t spend more unless they make more. ”
Thank you. Thank you. Thank you, Kevin Drum and also Maha for propagating this.
I have written this even before Bush came into office as rebuttal to various right-wing memes of trickle-down and supply side economics. There were skeptics to these one sided accounts of how things work even among economists but most Americans remained in such a commercialized, media-induced stupor and vacuum of ideas that they readily accepted the simplest explanations handed them by the right-wing talking point factories.
Unfortunately, we had to approach third-world status and witness the most egregious threats to freedom and unabashed corruption before coming out of nearly 30 years of slumber. And there was no Prince Charming in this fairy tale. The awakening was more like a board to the head.
I’d written two blog posts in this area. First one that, during the start of the fundie resurgence and the much publicized identification of “values voters”, questioned the assertion that there was no longer an underlying class war. It also questions the overemphasis of supply side at the expense of demand side. It was writtein in 2006 with the date showing only when it had been ported to my new blog:
http://ppatt.spaces.live.com/blog/cns!31E12062D0015784!894.entry
There is one more quick and dirty I did on the works of British economist E.F. Schumacher. I’d read his wonderful book “Small Is Beautiful” back in ’73 and have stewed in many of his timely ideas ever since. Coincidentally enough, many of his ideas on economics are steeped in Buddhist philosophy, as explained in the blog post. I am unaware of wheterh Maha has reference Schumacher, so pardon me if this is old news. Here’s the link:
http://ppatt.spaces.live.com/?_c11_BlogPart_BlogPart=blogview&_c=BlogPart&partqs=cat%3dEconomics
Thanks so much for being a force in the awakening that I trust is now on the upswing!!
The other day I heard a European say ” we cannot invest in america because they do not regulate”. funny huh? the free marketeers finding that a safe investment is more valued than a ‘cowboy” economy. That in the real world people value stability over shootouts and downfalls, even the investor class prefers it, not just the middle class. Will we let a few southern senators justify billions in tax breaks for their Japanese factories over a loan to help american business/labor? People really do not realize what a landslide cascade this will be. As they say karma beats the @* # out of dogma.
Krugman posted on the Drum article as well. I like Krugman but sometimes disagree. He was one of the ones suggesting that Obama and his supporters were naive.
Anyway, I suspect like any professor stimulating discussion and leveraging Socratic irony to get people’s gears turning he made this post tongue-in-cheek:
http://krugman.blogs.nytimes.com/2008/12/17/do-we-need-the-middle-class/?apage=2#comments
I can envision his impish grin. He’s shown heart in the past and also a bit of mischief. He contends that NYC is an example of the very rich sustaining those of a much lower class and states that “in theory” the middle class is not needed.
His analogy of NYC might not be that strained…just think Bonfire of the Vanities and today’s corporate CEOs. I think he was trying to get people to think about that sort of thing and whether it is justified…to stir things up a little bit.
Pat — I disagree with Krugman that the example of New York City proves an economy can work without a middle class. New York City has plenty of middle class workers; it’s just that they live in New Jersey, Long Island, and Westchester.
I don’t really agree that the knee-jerk GOP voter is a thing of the past. Plenty of folks vote Republican as a matter of course, voting against their best interests in the process. (btw, the bad ice storm may have cost the Dems NH in the next couple of races, since plenty of people are so furious about the anemic response to what’s happening in this state and they’re blaming the Dems who are in control of it.)
Sooo about those carmakers… they just had a blip about them closing for 4 weeks on CNN. In it they said the auto workers could file for unemployment to help with the time. The last bit of info was that THE MANAGEMENT WILL CONTINUE TO GET THEIR PAY. I am beginning to see this as a union busting ploy.
I say let management stand in the unemployment line with every body else! Does anyone know a logical reason other than union busting that would have the car companies continuing to pay management but not the people who work?
The Economist magazine recently said of the current Republican Party: “The party lost the battle for brains.”
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