Over the last decade or so major corporations in every industry improved productivity and the bottom line by eliminating jobs and forcing down rates of pay for employees other than those at the top. At the same time, the American economy was driven partly by unthinking consumer spending spurred on by sophisticated marketing techniques. And I don’t think we can overlook that it was also driven by spending required to sustain two inane but unfunded wars. The combination of consumer and national deficit spending was a bubble bound to burst, and it did.
Oddly enough the current, and no doubt brief, joy over modest improvements in GDP growth rates is the result of increased consumer spending while consumer income and levels of unemployment have remained stagnant. We need to get something straight. A nation cannot simultaneously force middle and lower incomes to remain stagnant (or decline) while encouraging greater savings, paying down on consumer debt and building a revitalized economy on consumer spending.
An unnamed wire service reporter wrote today that, “Economist believe that growth in consumer spending, which accounts for about 70 percent of economic activity, will be restrained until incomes start growing at healthier levels. That is unlikely until hiring picks up.” At the same time, Census Bureau data show that between 1979 and 2007 the top 1 percent of households saw their incomes rise 273 percent while middle income households saw theirs go up 40 percent and low income households 18 percent. It looks like a systemic problem, and maybe it is in one way or another. The greater reality is that it is an ethical problem that lies squarely in the laps of boards of directors and senior management in major corporations and investment funds.
For the economy to truly recover we must adopt a new ethic, one in which low and middle income wage earners are enabled to see their incomes rise while top earners see theirs level off. The likelihood of that happening is not great. The government has little power to change things except through tax policy, which is not a very effective tool for things such as this. Where the problem lies is from where the solution must come, but human greed is such a strong and seductive force that I don’t think it will.
The more likely result will be for income inequality to continue to grow. The economy will enter a years long period of tepid growth fueled more by selling whatever we can over seas than anything else. And most Americans will see their standard of living slowly deteriorate. It may not be all bad. Average Americans will learn that there is a limit to how many flat screen televisions, boats, pickups and ATVs they really need. They will discover the benefits of community colleges and inexpensive entertainments. Incomes will slowly catch up to declining home prices for some, and others will find the life of a renter not all that bad. The rich will still be rich of course, and behave more and more like oligarchs, but as I have written before, oligarchies are inherently unstable. Who knows, maybe we will become something like the French of the early 19th century with the lower classes periodically rising up to depose the wealthy for a season. I hope not. Perhaps the raggedy moral force of the Occupy Wall Street demonstrations will make a difference. We shall see.