Janet Yellen and others at the Fed are wringing their hands. Our economic recovery is moving way too slowly. Seven years after the 2008 collapse, our economy is simply not able to catch fire.
To me a big part of the cause of our malaise is the subject I wrote about in a recent New York Times OpEd. Hiding in plain sight is the vast and growing inequality of both income and opportunity and the damaging consequences it leaves in its wake. When you look closely at the economic reality of America today, you can see a vast socio-economic divide. Some 40% of our citizens are actually broke, according to the Bureau of Labor Statistics. After they pay for all expenses, they are in debt--and that debt is growing bigger each year for all of them. That's about 120 million of our citizens. Our so-called upper middle class, the 20 percent closest to our well-off folks are left with a paltry $1,300 a month after all their taxes and expenses are paid.
One cold wind--a damaged roof or an illness--and they're in serious trouble. The solid middle class of yesterday with a secure job, with money in the bank, with kids in private schools and the like have simply vanished. That leaves some 20 percent of us feeling flush. This group controls over 90% of the nation's wealth. Their kids are well-educated nearly from birth. Job security and money in the bank. And too often in corporate and political positions to make sure their lifestyles are protected.
Today Corporate America operates under the tyranny of shareholder primacy. CEOs and their corporate boards are told to maximize short-term shareholder value. Cut all costs, invest as little as possible and then engineer finances to drive up a company's stock. CEOs get paid obscene sums to deliver these results or they get fired. But wages for the vast majority outside the CEOs and top management have flat-lined for decades.
So Chair Yellen is putting on stronger glasses, looking for signs that the slow-rising economy would produce higher wages. So far, that is just not happening. At stake is not just an issue of fairness, justice or morality. (Although of course all of these issues apply.) The real value creators -- the mass of employees of America do not receive just compensation. The zeitgeist of shareholder primacy just won't allow it. But more than fairness and justice, paying people more is good business. Study after study shows that well-paid, well appreciated employees produce better results for all stakeholders, including shareholders!
The time to act is now. The current economic paradigm is unsustainable. The consequences of more of the same are likely to producer social unrest or a backlash of punitive taxation -- as Thomas Piketty has suggested.
There is some good news. A number of leaders and their corporations are breaking ranks. They pay their people more; they recognize that it's the employees who create value, who delight customers. These companies are the needed green shoots, the early adopters of what must become the future of labor-management teamwork: Home Depot, Qualcomm, Starbucks, Southwest Airlines, Whole Foods, Publix and others. We just need more of them.
What America needs is empowered citizens. We need more jobs; we need to pay the hardworking employees a fair wage. We need enough income flowing that adequately rewards the value workers create to help better educate all our children. The American Dream of being the best you can be must become reality again in our country. It's hard work, fair pay, good education. That leads to what made America great: equal opportunity. One recognizes that there will always be differences in income. But the equality we should seek is equal opportunity through merit and hard work to gain dignity, commensurate success and well-educated future generations. What we need is to empower all Americans. With business paying fairer wages, our economy will grow. And the Fed and Ms. Yellen can then manage an economy which is driven by most of our citizens, beyond just the 20 percent of the well-off folks today. Empowerment of all Americans. It will make us a stronger more secure nation and a more stable democracy. It's worth striving to achieve.