Cross-posted at Reports from the Economic Front.
The Wall Street Journal recently surveyed more than 50 economists, asking them what they thought was the main reason U.S. firms were not hiring more workers. Approximately 65% answered that it was a lack of demand for goods and services, 27% thought it was uncertainty about government policy, and 8% said it was the existence of more “favorable” hiring conditions overseas.
One might think that with so many economists citing a lack of demand as the primary reason for our continuing high rate of unemployment, those same economists would argue that getting more money into the pockets of working people would be a good strategy for recovery. But did the survey also reveal strong support by economists for a higher minimum wage, new union-friendly labor laws, a single payer health plan, an increase in social security payments, an aggressive industrial policy? No.
In fact, according to the Wall Street Journal, “Despite their forecasts for slow growth and an elevated unemployment rate, the economists aren’t in favor of futher action either by the Fed or the Federal government.” In other words there was no support for policies (micro or macro) that would dramatically change the economic environment.
There is good reason for rejecting this preference for the status quo. Take a look at the chart below which comes from an article in Investor’s Business Daily. Each point on the chart shows the change in total wages (adjusted for inflation) over the previous ten years.
As the article notes:
The past decade of wage growth has been one for the record books — but not one to celebrate.
The increase in total private-sector wages, adjusted for inflation, from the start of 2001 has fallen far short of any 10-year period since World War II, according to Commerce Department data. In fact, if the data are to be believed, economy-wide wage gains have even lagged those in the decade of the Great Depression (adjusted for deflation).
Two years into the recovery, and 10 years after the nation fell into a post-dot-com bubble recession, this legacy of near-stagnant wages has helped ground the economy despite unprecedented fiscal and monetary stimulus — and even an impressive bull market.
Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show.
To put that in perspective, since the Great Depression, 10-year gains in real private wages had always exceeded 25% with one exception: the period ended in 1982-83, when the jobless rate spiked above 10% and wage gains briefly decelerated to 16%.
In other words, we are experiencing a steady and long term decline in total real wages, one that was worsened but not caused by the Great Recession. Thus, there is little reason to believe that maintaining existing policies will lead to any meaningful increase in wages and, by extension, overall demand and employment.
How did the economy grow over the last decade despite this decline in wages? As we known, the answer was a debt-driven housing bubble. How is the economy growing now that the housing bubble has popped? Here is the answer given by Investor’s Business Daily:
So how has the economy managed to scale new GDP heights despite sagging real wages?
Real disposable income is up 3.6% since December 2007, thanks to nearly $1 trillion in government support via higher social benefits (up $583 billion since the recession began); lower tax bills (down $255 billion); and higher government wages and benefits (up about $125 billion).
Absent those sources of support, real disposable income would still be 5% below its prior peak.
What the article doesn’t mention is that in contrast to the decline in total real wages, corporate profits and stock prices have been soaring. In fact, the trends are related: the decline in wages is one of the main reasons for the growth in profits and stock prices. Economists at the Center for Labor Market Studies discuss these trends and their relationship in a recent study, which includes the following table:
With these trends in mind the professional consensus for the status quo becomes easier to understand. So does the need to actively oppose it.