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July 21, 2004
Second Time the Charm?
In an informative post explaining the similarities between the current economic environment and the pre-"New Deal" economy, Billmon highlights a striking fact about the current non-inflationary environment: partitioning of economic gains between the workers and the bosses has to come through explicit action. In other words, some of the mechanisms through which class warfare could be carried out circuitously depended on the presence of mild inflation, which seems no longer to be the case. Circuitous mechanisms help greatly with continuing to pull ideological blinders over people's eyes. One can imagine that most people would protest loudly if their paychecks had a line-item called "deduction for corporate welfare."
As Greenspan himself noted in his testimony yesterday, productivity gains have been gobbled into profitability rather than shared with wage-earners. There are many factors going into this result all of which add up to the fact that workers have been steadily losing leverage with which to force employers to share the spoils. Greenspan expects the trend to slowly even out and result in increased wages, but then what's he supposed to say?
Here's the kicker. In the past, inflation would slowly eat into wages, requiring some form of regular adjustment. Regular adjustment was expected and non-noteworthy. And every adjustment provided an opportunity for quietly realigning the division of the surplus between profits and wages. By keeping the adjustment somewhat below the rate of inflation, employers could eat into wages while still providing nominal "raises." In the current environment, they have to push wage-cuts -- and history has shown that people are much more resistant to nominal wage-cuts than they are to declines in their real wages accompanied by a nominal increase.
In other words, if a worker were earning $100 this year and boss offers $98 for next year (in a non-inflationary environment) one can't but immediately notice what's going on. It's much more confusing when you are offered $102 in an environment with, say 4 or 5 percent inflation.
In other words, the economic structure (which is to say, the social structure) of Old Deal America has been at least partially recreated. But that means workers and employers are once again confronting each other directly across the table. If wages need to be frozen, or cut, to keep them in line with the global competitive realities, or to meet Wall Street's relentless demands for earning growth - employers will have to do it. Inflation isn't going to do the job for them. Conversely, if workers want a raise, they're going to have to fight for it. The New Deal social convention of "X plus inflation" won't do it for them.
See a pattern here? We have inequality levels approaching the Gilded Age, "Old Deal" patterns of inflation and wage returns, a stock market bubble has just burst...
Let's just say that I'm still torn about the WPA's Federal Arts Project and wouldn't mind a rerun.
Posted by zeynep at July 21, 2004 05:17 PM
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Comments
Both you and the Billmon left out taxes as the other way wealth is redistributed. Seems to be this administration's favorite. It doesn't have to be fought out in the workplace.
Posted by: The other Ted at July 22, 2004 01:06 AM
"See a pattern here? We have inequality levels approaching the Gilded Age, "Old Deal" patterns of inflation and wage returns, a stock market bubble has just burst..."
... and the War to end all wars looms? is that the unsaid, Z?
Posted by: aswad at July 22, 2004 12:01 PM