December 22, 2008
Bail Out the Economy?
More Pay is the Only Way
By MIKE WHITNEY
A strong, resilient economy, that can withstand the periodic buffeting of cyclical downturns, must be built on a rock-solid foundation of wages that keep pace with production. If wages stagnate, as they have for the last 30 years, the only way a consumer-driven economy can grow is through the expansion of personal debt, which isn’t so hot in the long run.
Consider this: the US economy is 72 per cent consumer spending. That means the Gross Domestic Product (GDP) cannot grow if salaries don't keep up with the price of living. Low Income Families (LOF)--that is, any couple making less than $80,000--represent 50 per cent of all consumer spending. These LOF's spend everything they earn just to maintain their present standard of living. So, how can these families help to grow the economy if they're already spending every last farthing they earn?
They can't! Which is why wages have to go up, up, up. The cost to short-term profits is small potatoes compared to the turmoil created by a deep recession, which is what the world is facing right now due to misguided economic policies. The present crisis could have been averted if there was a better balance between management and labor. But the unions are weak and have little political power, so salaries have languished while Wall Street has turned the government into a revolving door for industry reps. and corporate stooges who apply their anti-labor doctrine with ruthless zeal. As a result, real wealth has been replaced by chopped up bits of mortgage paper, stitched together by Ivy League MBAs, and sold to investors as priceless gemstones.
The point is, that bubbles can be avoided if demand is predicated on regular wage increases rather than debt. It's that simple. The ferocity of the "boom and bust" cycle can be mitigated by just providing workers with a decent salary. That way they can buy the things they produce without going into debt. It also means that demand doesn't have to be fabricated with perilous amounts of credit and leveraging. Of course, this approach is starkly different from that of the Fed. Bernanke just announced his plan to slash interest rates to .25 percent while purchasing $800 billion of securities backed by mortgages, credit card debt and student loans. The message could not be clearer. The Fed is saying, "We will lend you as much as you want but, as far as a raise; forgeddaboutit." This illustrates how bubblemaking is really an expression of class bias that cannot be eradicated with reason alone. it takes real political power.
From Bernanke and Greenspan's perspective, any small gain by workers is regarded as "anti-free market" and tantamount to communism. The corporate mandarins would like to preserve the current antagonistic, labor-debasing system and keep workers one paycheck away from the homeless shelter. But it’s not good for the economy and it's not good for the country. It just perpetuates the chasm between rich and poor, suggesting of a species irreconcilably divided into slave owner and chattel. The only way to overcome these differences is by narrowing the wealth gap and rewarding hard work with fair pay.
Please read the entire article at:
http://www.counterpunch.org/whitney12222008.html
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