The Federal Reserve has announced that it is holding off on an interest rate hike; the last time it raised rates was in 2006. The reason for the lack of action: the Federal Reserve believes the economy remains fragile and, since inflation remains low, it doesn’t want to do anything that might bring the expansion to a halt.
In reality our economic problems go much deeper than slow growth and economic fragility. Bluntly said, most workers are losing ground regardless of whether the economy is in recession or expansion.
The following chart, from a New York Times article, shows the movement in real, inflation adjusted, median household income from 1999 to 2014.
The median household income was $53,657 in 2014. That was 1.5 percent below what it was in 2013. Perhaps even more disturbing, as the Times article notes:
The 2014 real median income number is 6.5 percent below its 2007, pre-crisis level. It is 7.2 percent below the number in 1999.
A middle-income American family, in other words, makes substantially less money in inflation-adjusted terms than it did 15 years ago. And there is no evidence that is reversing…
The depressing data on middle-class wages is true across almost all groups based on race and age. (One exception is a 5.3 percent gain in median wages among Hispanics in 2014, though that is within the statistical margin of error and so may not be meaningful).
And there is good reason for believing that things are unlikely to improve in the near future. As a recent study by the National Employment Law Project makes clears, real wages are continuing to fall for most workers.
The authors of the National Employment Law Project study “calculated the percentage change in real median hourly wages from 2009 to 2014 for 785 occupations, which were grouped into quintiles, each representing approximately one-fifth of total employment in 2014.” Figure 1 shows the change in real wages for each of the five quintiles over the period. As we can see, real median hourly wages fell across the board, with the overall median wage falling by 4 percent.
Figure 2 keeps the same wage groupings but shows the change in wages for both the highest (90th percentile) and lowest (10th percentile) earners in each wage quintile. As we can see, with the exception of occupations in the lowest paid quintile, the fall in wages was greater for those in the bottom percentile than for those in the top percentile. That said, the most striking fact is that all suffered declines in real wages.
Steady as she goes, which seems to be the strategy of most policy-makers, is unlikely to turn things around.
It seems certain that the political economy textbooks of the future will include a chapter on the experience of Greece in 2015.
On July 5, 2015, the people of Greece overwhelmingly voted “NO” to the austerity ultimatum demanded by what is colloquially being called the Troika, the three institutions that have the power to shape Greece’s future: the European Commission, the International Monetary Fund, and the European Central Bank.
The people of Greece have stood up for the rights of working people everywhere.
Greece has experienced six consecutive years of recession and the social costs have been enormous. The following charts provide only the barest glimpse into the human suffering:
While the Troika has been eager to blame this outcome on the bungling and dishonesty of successive Greek governments and even the Greek people, the fact is that it is Troika policies that are primarily responsible. In broad brush, Greece grew rapidly over the 2000s in large part thanks to government borrowing, especially from French and German banks. When the global financial crisis hit in late 2008, Greece was quickly thrown into recession and the Greek government found its revenue in steep decline and its ability to borrow sharply limited. By 2010, without its own national currency, it faced bankruptcy.
Enter the Troika. In 2010, they penned the first bailout agreement with the Greek government. The Greek government received new loans in exchange for its acceptance of austerity policies and monitoring by the IMF. Most of the new money went back out of the country, largely to its bank creditors. And the massive cuts in public spending deepened the country’s recession.
By 2011 it had become clear that the Troika’s policies were self-defeating. The deeper recession further reduced tax revenues, making it harder for the Greek government to pay its debts. Thus in 2012 the Troika again extended loans to the Greek government as part of a second bailout which included . . . wait for it . . . yet new austerity measures.
Not surprisingly, the outcome was more of the same. By then, French and German banks were off the hook. It was now the European governments and the International Monetary Fund that worried about repayment. And the Greek economy continued its downward ascent.
Significantly, in 2012, IMF staff acknowledged that the its support for austerity in 2010 was a mistake. Simply put, if you ask a government to cut spending during a period of recession you will only worsen the recession. And a country in recession will not be able to pay its debts. It was a pretty clear and obvious conclusion.
But, significantly, this acknowledgement did little to change Troika policies toward Greece.
By the end of 2014, the Greek people were fed up. Their government had done most of what was demanded of it and yet the economy continued to worsen and the country was deeper in debt than it had been at the start of the bailouts. And, once again, the Greek government was unable to make its debt payments without access to new loans. So, in January 2015 they elected a left wing, radical party known as Syriza because of the party’s commitment to negotiate a new understanding with the Troika, one that would enable the country to return to growth, which meant an end to austerity and debt relief.
Syriza entered the negotiations hopeful that the lessons of the past had been learned. But no, the Troika refused all additional financial support unless Greece agreed to implement yet another round of austerity. What started out as negotiations quickly turned into a one way scolding. The Troika continued to demand significant cuts in public spending to boost Greek government revenue for debt repayment. Greece eventually won a compromise that limited the size of the primary surplus required, but when they proposed achieving it by tax increases on corporations and the wealthy rather than spending cuts, they were rebuffed, principally by the IMF.
The Troika demanded cuts in pensions, again to reduce government spending. When Greece countered with an offer to boost contributions rather than slash the benefits going to those at the bottom of the income distribution, they were again rebuffed. On and on it went. Even the previous head of the IMF penned an intervention warning that the IMF was in danger of repeating its past mistakes, but to no avail.
Finally on June 25, the Troika made its final offer. It would provide additional funds to Greece, enough to enable it to make its debt payments over the next five months in exchange for more austerity. However, as the Greek government recognized, this would just be “kicking the can down the road.” In five months the country would again be forced to ask for more money and accept more austerity. No wonder the Greek Prime Minister announced he was done, that he would take this offer to the Greek people with a recommendation of a “NO” vote.
Almost immediately after the Greek government announced its plans for a referendum, the leaders of the Troika intervened in the Greek debate. For example, as the New York Timesreported:
By long-established diplomatic tradition, leaders and international institutions do not meddle in the domestic politics of other countries. But under cover of a referendum in which the rest of Europe has a clear stake, European leaders who have found [Greece Prime Minister] Tsipras difficult to deal with have been clear about the outcome they prefer.
Many are openly opposing him on the referendum, which could very possibly make way for a new government and a new approach to finding a compromise. The situation in Greece, analysts said, is not the first time that European politics have crossed borders, but it is the most open instance and the one with the greatest potential effect so far on European unity…
Martin Schulz, a German who is president of the European Parliament, offered at one point to travel to Greece to campaign for the “yes” forces, those in favor of taking a deal along the lines offered by the
On Thursday, Mr. Schulz was on television making clear that he had little regard for Mr. Tsipras and his government. “We will help the Greek people but most certainly not the government,” he said.
European leaders actively worked to distort the terms of the referendum. Greeks were voting on whether to accept or reject Troika austerity policies yet the Troika leaders falsely claimed the vote was on whether Greece should remain in the Eurozone. In fact, there is no mechanism for kicking a country out of the Eurozone and the Greek government was always clear that it was not seeking to leave the zone.
Having whipped up popular fears of an end to the euro, some Greeks began talking their money out of the banks. On June 28, the European Central Bank then took the aggressive step of limiting its support to the Greek financial system.
This was a very significant and highly political step. Eurozone governments do not print their own money or control their own monetary systems. The European Central Bank is in charge of regional monetary policy and is duty bound to support the stability of the region’s financial system. By limiting its support for Greek banks it forced the Greek government to limit withdrawals which only worsened economic conditions and heightened fears about an economic collapse. This was, as reported by the New York Times, a clear attempt to influence the vote, one might even say an act of economic terrorism:
Some experts say the timing of the European Central Bank action in capping emergency funding to Greek banks this week appeared to be part of a campaign to influence voters.
“I don’t see how anybody can believe that the timing of this was coincidence,” said Mark Weisbrot, an economist and a co-director of the Center for Economic and Policy Research in Washington. “When you restrict the flow of cash enough to close the banks during the week of a referendum, this is a very deliberate move to scare people.”
Then on July 2, three days before the referendum, an IMF staff report on Greece was made public. Echos of 2010, the report made clear that Troika austerity demands were counterproductive. Greece needed massive new loans and debt forgiveness. The Bruegel Institute, a European think tank, offered a summary and analysis of the report, concluding that “the creditors negotiated with Greece in bad faith” and used “indefensible economic logic.”
The leaders of the Troika were insisting on policies that the IMF’s own staff viewed as misguided. Moreover, as noted above, European leaders desperately but unsuccessfully tried to kill the report. Only one conclusion is possible: the negotiations were a sham.
The Troika’s goals were political: they wanted to destroy the leftist, radical Syriza because it represented a threat to a status quo in which working people suffer to generate profits for the region’s leading corporations. It apparently didn’t matter to them that what they were demanding was disastrous for the people of Greece. In fact, quite the opposite was likely true: punishing Greece was part of their plan to ensure that voters would reject insurgent movements in other countries, especially Spain.
And despite, or perhaps because of all of the interventions and threats highlighted above, the Greek people stood firm. As the headlines of a Bloomberg news story proclaimed: “Varoufakis: Greeks Said ‘No’ to Five Years of Hypocrisy.”
The Greek vote was a huge victory for working people everywhere.
Now, we need to learn the lessons of this experience. Among the most important are: those who speak for dominant capitalist interests are not to be trusted. Our strength is in organization and collective action. Our efforts can shape alternatives.
President Obama continues to press for a form of fast track approval to ensure Congressional support for two major trade agreements: the Trans-Pacific Trade Partnership Agreement (with 11 other countries) and the Trans-Atlantic Trade and Investment Partnership Agreement (with the entire European Union).
Both agreements, based on leaks of current negotiating positions, have been structured to promote business interests and will have negative consequences for working people relative to their wages and working conditions, access to public services, and the environment.
These agreements are being negotiated in secret: even members of Congress are locked out of the negotiating process. The only people that know what is happening and are in a position to shape the end result are the U.S. trade representative and a select group of 566 advisory group members selected by the U.S. trade representative.
Thanks to a recent Washington Postpost we can see who these advisory group members are and, by extension, whose interests are served by the negotiations. According to the blog post, 480 or 85% of the members are from either industry or trade association groups. The remaining 15% are academics or members of unions, civil society organizations, or government committees. The blog post includes actual names and affiliations.
Here we can see the general picture of corporate domination of U.S. trade policy as illustrated by the Washington Post.
In short, corporate interests are well placed to directly shape our trade policies. No wonder drafts of these treaties include chapters that, among other things, lengthen patent protection for drugs, promote capital mobility and privatization of public enterprises, and allow corporations to sue governments in supra-national secret tribunals if public policies reduce expected profits.
Americans have become increasingly critical of public policy as a means of addressing social problems. Many believe that these policies don’t work; the reality is that public policies are often subverted in ways that make them ineffective or even counterproductive.
Take taxes and inequality. As Danny Vinik, writing in the New Republic explains:
The vast majority of Americans—both liberals and conservatives—believe that state and local taxes should also be progressive. That’s the finding of a new report released by WalletHub Monday. The researchers surveyed 1,050 Americans on what they thought the combined rate of state and local taxes should be at various income levels. Not surprisingly, liberals want the rate structure to be a bit more progressive than conservatives do, but their responses [as the following chart shows] were relatively similar:
However the reality is quite different. State and local taxes are actually quite regressive. The Institute for Taxation and Economic Policy studied the “fairness of state and local tax systems by measuring the state and local taxes that will be paid in 2015 by different [non-elderly] income groups as a share of their incomes.” They did this state by state and, as presented below, on an overall basis. As we can see, the lower the income, the greater the state and local tax burden.
Here are some of the report’s key findings:
Virtually every state tax system is fundamentally unfair, taking a much greater share of income from low- and middle-income families than from wealthy families. The absence of a graduated personal income tax and overreliance on consumption taxes exacerbate this problem.
In the 10 states with the most regressive tax structures (the Terrible 10) the bottom 20 percent pay up to seven times as much of their income in taxes as their wealthy counterparts. Washington State is the most regressive, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas, and Indiana.
Heavy reliance on sales and excise taxes are characteristics of the most regressive state tax systems. Six of the 10 most regressive states derive roughly half to two-thirds of their tax revenue from sales and excise taxes, compared to a national average of roughly one-third . Five of these states do not levy a broad-based personal income tax (four do not have any taxes on personal income and one state only applies its personal income tax to interest and dividends) while four have a personal income tax rate structure that is flat or virtually flat.
States commended as “low tax” are often high tax states for low-and middle-income families. The 10 states with the highest taxes on the poor are Arizona, Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island, Texas, and Washington. Seven of these are also among the “terrible ten” because they are not only high tax for the poorest, but low tax for the wealthiest.
In short, we know how to construct tax policies that can lessen inequality, but we’re not using state and local taxes to do it.
One of the arguments against an increase in the minimum wage is that it will lead to higher unemployment. One can make theoretical arguments for and against this proposition. And, of course, the income gains from an increase in the minimum wage are likely to produce overall benefits for both low wage workers and the economy as a whole even if there is a rise in unemployment.
Economists have tried to estimate the employment effects of a rise in the minimum wage. As a Vox article describes, two of them, Hristos Doucouliagos and T.D Stanley, looked at almost 1,500 estimates of the effects of minimum wage increases on employment and found that the estimates “clustered right around zero effect, but with more of those estimates showing a slight downward pressure on employment.”
They concluded, “with sixty-four studies containing approximately fifteen hundred estimates, we have reason to believe that if there is some adverse employment effect from minimum wage rises, it must be of a small and policy-irrelevant magnitude.”
Electing Republicans will certainly not improve things, but it is hard to blame people for feeling that the Democratic Party has abandoned them.
President Obama had hoped that recent signs of economic strength would benefit Democrats in the recently completed election. Job creation has picked up, the unemployment rate is falling, and growth is stronger. Yet, most Americans have not enjoyed any real gains during this so-called expansionary period.
The following two charts highlight this on the national level. The first shows how income gains made during the expansion period have been divided between the top 1% and everyone else. There is not a lot to say except that there is not a lot of sharing going on.
The second shows trends in real median household net worth. While declines in median net worth are not surprising in a recession, what is noteworthy is that median net worth has continued to decline during this expansion. Adjusted for inflation the average household is poorer now than in 1989.
Oregon provides a good example of state trends. The chart below shows that the poverty rate in Oregon is actually higher now than it was during the recession.
The poverty rate for children is even higher. In 2013, 21.6 percent of all Oregon children lived in families in poverty.
And, not surprisingly, communities of color experience poverty rates far higher than non-Hispanic whites.
More promising is movement building to directly advance community interests. One example: voters in five states passed measures to boost minimum wages. Another was the successful effort in Richmond, California to elect progressives to the city council over candidates heavily supported by Chevron, which hoped to dominate the council and overcome popular opposition to its environmental and health and safety policies.
Iceland continues to experiment with new ways to promote majority living standards. According to the Icelandic Grapevine, a bill has been submitted to the Icelandic parliament that would shorten the workweek. More specifically, it would change the definition of a full time workweek to 35 hours instead of the current 40 and the full workday to 7 hours rather than the current 8.
The bill points out that other countries which have shorter full time work weeks, such as Denmark, Spain, Belgium, Holland and Norway, actually experience higher levels of productivity. At the same time, Iceland ranked poorly in a recent OECD report on the balance between work and rest, with Iceland coming out in 27th place out of 36 countries.
The bill also points out that a recent Swedish initiative to shorten the full time work day to six hours has been going well, with some Icelanders calling for the idea to be taken up here. In addition, the bill also cites gender studies expert Thomas Brorsen Smidt’s proposal to shorten it even further, to four hours.
There is certainly significant variation among countries in the length of the workweek, as the following information from the U.S. Bureau of Labor Statistics shows:
In 2011 the average annual hours worked per employed person in the U.S. was 1758. The number for French workers was 1476. It was 1411 for German workers. Assuming a 40 hour workweek, the average U.S. worker had a work year more than two months longer than the average German worker. It is also worth noting that while all the countries that reported data for the entire period 1979 to 2011 showed reductions in work time, the reduction was the smallest in the U.S.
Although it is not easy to establish a clear relationship between work hours and productivity, there is reason to believe that the relationship may be inverse. In other words, the shorter the workweek the more productive we are. It would certainly be nice, for many reasons, if someone in the U.S. Congress followed the lead of Iceland and introduced a bill to reduce work time in the U.S.
As workers battle to raise the minimum wage it is nice to see more evidence that doing so helps both low wage workers and state economies.
Thirteen states raised their respective minimum wages in 2014: AZ, CA, CT, FL, MO, MT, NJ, NY, OH, OR, RI, VT, and WA. Elise Gould, an economist at the Economic Policy Institute, compared labor market changes in these thirteen states with changes in the rest of the states from the first half of 2013 to the first half of 2014.
Economic analyst Jared Bernstein summarizes the results as follows:
[Gould] compares the 10th percentile [lowest earners] wage growth among these thirteen states that increased their minimums with the rest that did not. The results are the first two bars in the figure below.
Real wages for low-wage workers rose by just about 1% over the past year in the states that raised their minimum wages, and were flat (down 0.1%) in the other states.
OK, but did those increases bite into employment growth, as opponents typically insist must be the case? Not according to the other two sets of bars. They show that payroll employment growth was slightly faster in states that raised, and the decline in unemployment, slightly greater.
In short, raising the minimum wage did boost the earnings of those at the bottom of the income distribution. Moreover, workers in states that raised the minimum wage also enjoyed greater employment growth and a greater decline in unemployment than did workers in states that did not.