When I read the headline "American Wages out of Balance" on page 2 of the New York Times business section, I figured it would be a well-reasoned piece about our obscene distribution of income. It would be good for the Times to describe how Wall Street profits and bonuses, derived from our bailout funds, will further exacerbate problematic wealth disparities.
No such luck. The Breakingviews.com column was all about how the American worker is overpaid! I kid you not. Edward Hadas, Martin Huchinson and Antony Currie inform us that:
American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance.
They don't mention that the average non-supervisory worker has already taken an 18 percent cut in real wages between 1973 and 2007. What's worse, they claim that if workers don't take these additional cuts, these "overpaid" working stiffs will be the cause of another Great Depression, and I'm not overstating their claim. They write"
But if American wages get stuck above global market-clearing levels, as in the 1930s, the result could well be something approaching Depression-era levels of unemployment.
They are preparing us for the horrific rise in the unemployment rate that is still to come. But, like accidental time travelers from the go-go '90s who haven't learned that the current crash was manufactured by the financial sector, they predict the cause of any worsening in the situation will be those greedy workers.
In this they are recycling a theory that economists like Fed Chairman Ben Bernanke believe to be true: that the Great Depression got much, much worse because workers resisted wage cuts as deflation increased the buying power of their wages.
But blaming workers for their own unemployment is only possible if you adopt the deep logic of the Billionaire Bailout Society. In that world, financiers can do no wrong. In that world they deserve what they earn, because they earn it. In that world, wealth equals value, value equals wealth. By definition the super-rich are the most valuable among us. If their fantasy finance games eventually crash the entire system, we bail them out. Sure, they may have sent tens of millions to the unemployment lines, but that can't be helped. Wall Street must be free to innovate and to earn its rapacious profits and bonuses. So under this logic, when unemployment skyrockets, like now, you blame workers for being overpaid. You see, the markets will resume job creation if they are free to adjust. We don't want downwardly sticky wages caused by worker resistance to wage cuts. After all, wage cuts are for their own good and for the good of the unemployed. They must sacrifice for the good of their country.
Of course, even in this billionaire alternative reality, it's very hard to get workers to cut their wages, especially while Wall Street is gorging itself at the bonus trough filled with workers' tax receipts. So the authors suggest that "a moderate inflation to cut real wages and a further drop in the dollar's real trade-weighted value might be acceptable." In other words, we'll cut their wages by devaluing them and maybe they won't notice.
If these authors want to write about worker wages, then they owe it to their readers to at least mention the enormous gap that emerged between productivity and real wages. From WWII until the mid-1970s U.S. productivity rose year after year as did real wages. The two seemed forever linked. The steady rise of manufacturing real wages created the new middle class. It was the heart and soul of the post-WWII boom. But, starting in the mid-1970s, the two trends decoupled as we deregulated finance and changed the tax code to allow money to flow upwards the the top income groups. Productivity continued its rise, but real wages stagnated and then declined. (See Chapter 2, The Looting of America.)
The gap between these two trends lines represents real money -- more than three trillion dollars a year by 2007. Where did it go?
It went to create the new billionaire class. It went to the uber-rich on Wall Street. It was the fuel for the fantasy finance boom and bust. The gap in incomes and wealth grew and grew to proportions not seen since 1928-29. There is no evidence that suggests that rising real wages for the average person causes a depression. But there is a great deal of evidence to suggest that an extreme distribution of wealth creates tremendous financial instability.
The very last thing we need right now is to cut workers' wages and turn over more booty to the billionaire bailout class. That should be clear to all by now unless you have succumbed to billionaire bailout logic.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.