When the Age of Economic Anxiety Began

* Editor's Note: I could simply say that the era of economic anxiety began when American workers first lost their edge --- which was over 40 years ago as our elected politicians (in both major political parties) kowtowed to major corporations while also using their public office to enrich themselves --- but that would be much too simple. So make a pot of coffee, read this (and be sure to read through all the links), and then you can draw your own conclusions.

CBS News is only about 5 years too late in reporting this --- that the unemployment rate has been falling only because of a record low labor-force participate rate --- and because millions of unemployed American workers are no longer being counted by their government.

This was excerpted from a very interesting article titled The 40 Year Slump: "Since 1947, Americans at all points on the economic spectrum had become a little better off with each passing year. The economy's rising tide, as President John F. Kennedy had famously said, was lifting all boats.

Productivity had risen by 97 percent in the preceding quarter-century, and median wages had risen by 95 percent. As economist John Kenneth Galbraith noted in his book, The Affluent Society, this newly middle-class nation had become more egalitarian.

The poorest fifth had seen their incomes increase by 42 percent since the end of World War II, while the wealthiest fifth had seen their incomes rise by just 8 percent. Economists have dubbed this era "The Great Compression."

Women entered the workforce in record numbers during the early 1970s. A new generation of workers rebelled at the regimentation of factory life, staging strikes across the Midwest to slow down and humanize the assembly line. But no one could deny that Americans in 1974 lived lives of greater comfort and security than they had a quarter-century earlier. During that time, median family income more than doubled. From 1954 through 1974, American workers brought home most of the wealth that they produced.

Then, it all stopped.

In 1974, for the first time since the end of World War II, Americans' wages declined. Since 1974, they've steadily lost power—and they're getting just a fraction of the wealth they produce today.

But since 1974, productivity has increased by 80 percent, and yet median compensation (that's wages plus benefits) has risen by just 11 percent during that time. The middle-income jobs of the nation's postwar boom years have disproportionately vanished. Low-wage jobs have disproportionately burgeoned. Employment has become less secure. Benefits have been cut. The dictionary definition of "layoff" has changed --- from denoting a "temporary severance" from one's job to denoting a "permanent termination".

As their incomes flat-lined, Americans struggled to maintain their standard of living. In most families, both adults entered the workforce and became dual income households. They worked longer hours. When paychecks stopped increasing, they tried to keep up by incurring an enormous amount of debt. The combination of skyrocketing debt and stagnating income proved predictably calamitous (though few predicted it). Since the crash of 2008, that debt has been called in.

All the factors that had slowly been eroding Americans' economic lives over the preceding three decades—globalization, deunionization, financialization, Wal-Martization, robotization, and the whole megillah of nefarious "izations" have now descended en masse on the American people.

The middle has fallen out of the American economy—precipitously since 2008, but it's been falling out slowly and cumulatively for the past 40 years. Far from a statistical oddity, 1974 marked an epochal turn. The age of economic security ended. The age of anxiety began." (Read the entire unedited historical account here.)

Now in 2013, as the Wall Street Journal has noted, with the U-3 unemployment rate still high at 7.3%, there's lots of competition for entry-level jobs. (The U-7 unemployment rate is a staggering 16.18%). And with other measures of the labor market showing even greater weakness, that gives employers little incentive to raise pay, especially for low-skill jobs. The U.S. economic recovery has been leaving low-wage workers behind (Although, it hasn't always been that way.)

Across the Atlantic Ocean on another continent, the countries in sub-Saharan Africa such as Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda have achieved strong and sustained growth since the mid-1990s, despite not having exploited natural resources on a large scale during this period. These countries had real output growth greater than 5 percent on average during the period 1995–2010. One reason is because all six countries saw higher FDI [foreign direct investment]. (Editor's Note: Is this why the Obama administration wants to Power Africa --- to create another emerging market for offshoring jobs and selling goods?)

Excerpts from the Federal Reserve Bank of San Francisco: "We all know China has been a modern miracle of growth since Deng Xiaoping's reforms were introduced in 1978. For over 30 years, China's real GDP growth has averaged about 10% annually—a sustained pace of growth that is unrivaled in economic history (To put that in perspective, over the same time period, most of the rest of the world's economies experienced an average annual growth rate of real GDP of about 3%).

The share of China's population living in cities more than doubled between 1980 and 2005. At its current pace, we can expect to see one billion people living in cities in China by 2030. That's more than the current populations of the United States, Russia, and the entire European Union combined. This accomplishment is breathtaking.

[Power brokers in] the United States would like to decrease its reliance on consumption as the engine of growth [and it appears they're achieving this with high unemployment and low wages], relying more on domestic investment and exports. China would like to see more consumer spending at home, and less reliance on domestic investment and exports.

China's remarkable growth over the past 30 years has been fostered by an emphasis on investment and exports. The United States, by contrast, has for decades consumed and invested more than it produced, relying on imports to fill the gap.

Editor's Note: To boost the US figures for GDP (making the economy appear better than it really is) the government plans to reclassify imports that are manufactured by American companies that offshore jobs overseas (such as tax avoiders like Apple, Nike, etc.), by making ownership of the final product the official statistic for GDP, rather than the actual production. The U.S. will have a new definition to offset our trade deficits called "factoryless manufacturing". We will have U.S. manufacturing numbers as part of the GDP without actually making any goods in the United States. That's the government's plan to count corporations and their products (who are located in the U.S., but offshore outsource their manufacturing abroad), as part of the U.S. manufacturing base. See the links below:

• America's Outsourcers to be Reclassified as Manufacturers
• Factoryless Goods: Imports Measured as Output in GDP

Economists can't agree about the primary reason China's domestic consumption is so low. One possibility is the population's focus on saving—in large part to cover the cost of health care, education, and preparation for old age. If China is to rebalance the economy away from exports and towards domestic consumption, there must be an increase in household incomes. That means higher wages --- meaning, American offshorers will move their manufacturing and other jobs to lower-wage countries, such as Vietnam (or wherever).

Another issue is China's increasing income inequality—something we in the United States can relate to. What money is flowing to households is concentrated largely in the expanding class of wealthy citizens, rather than to China's rural and middle-class families.

The final, and perhaps the most important factor is that, just as in the US, while corporate profits have risen in China (and elsewhere), a comparable rise in individual income has not followed.

When it comes to inequality, as it relates to education and jobs in the US, the New York Times reports that many Americans have come to doubt the proposition that college delivers a path to prosperity. Only 40 percent of Americans think college is a good investment, according to a 2011 poll by the Pew Research Center. (College grads have been taking jobs that high school dropouts once aspired.)

"It is absolutely clear that educational wage differentials have not driven wage inequality over the last 15 years," said Lawrence Mishel, who heads the Economic Policy Institute. "Wage inequality has grown a lot over the last 15 years and the educational wage premium has changed little."

Technological progress increased the demand for highly educated workers who could deploy it profitably and increase their incomes (if a worker with STEM skills wasn't displaced by a H-1B visa worker). Like a trade skill, it rendered many less-skilled occupations obsolete, eliminating what used to be solid, middle-class jobs (See my post about the offshoring of manufacturing jobs to Asia).

The sluggish job growth of the last decade demands an explanation, which the interplay between technology and skill does not provide. "We have no handle on what happened in the 2000s," says Professor David Autor of the Massachusetts Institute of Technology. "That is a mystery that nobody I know understands, and I can't point to a single policy lever or a single external force that would explain it." (America lost 56,190 manufacturing facilities from 2001 to 2010 --- so that might be one clue for the economists.)

Most notably, the skills-and-tech story leaves aside one of the most perplexing and important dynamics of the last 30 years: the rise of the 1 percent, a tiny sliver of the population that last year took in almost a dollar out of every $4 generated by the American economy. (See this very dramatic video at YouTube explaining wealth inequality in the US).

Inequality's rise is institutional: a shrinking minimum wage cut into the earnings of the nation's least-skilled workers while falling trade barriers, deregulation and the decline of labor unions (whose memberships peaked in 1979) eroded the income of the middle class. The rise of the top 1 percent is mostly about executive pay and the growing footprint of finance.

While education would improve a worker's economic mobility, if the ever-deepening concentration of income has little to do with the education gap, more education is unlikely to close it. Professor Lawrence Mishel of the Economic Policy Institute says, "Kids should still go to college, and when there's a whole lot more do, then we'll have more opportunity. But college wages will fall. This won't really bring us broad-based wage growth, which is the central challenge to getting improved social mobility and expanding and rebuilding the middle class."

One study shows that almost 1/3 of all current US jobs are still prone to offshoring and another study from the Center for Economic and Policy Research (CEPR) shows that the vast majority of U.S. workers would see wage losses as a result of Obama's pending "free trade agreement" called the Trans-Pacific Partnership (TPP). (Also, read my posts about H-1B visas and guestworker programs.)

An array of policies is needed to address the labor market's lopsided distribution of economic rewards. They range from a higher minimum wage to help lift the income of service workers at the bottom of the market to a larger earned-income tax credit --- and more technical training, which could help upgrade the skills of high school graduates.

Editor's Note: We've had 18 million high school grads since the Great Recession, so we still have negative job growth --- 7.8 million jobs created vs 8.7 million jobs lost since the Great Recession.

Also, steeper income taxes on the very rich could curb the accumulation of income at the top. As they accumulate more and more wealth, the very rich have less need for society. At the same time, they've convinced themselves that they made it on their own, and that contributing to societal needs (such as Social Security) is unfair to them. There is ample evidence of this in "Five ways the super rich are betraying America" (And for the most part, the Republicans have been their favorite enablers).

Perhaps most important, the design of macroeconomic policies might give more weight to maintaining low unemployment. "Education is certainly part of the answer, but it is certainly not a complete answer," Professor Katz said.

There is good reason to resist the proposition that education and technology are solely responsible for growing inequality. It provides political leaders an excuse to cast the problem as beyond the reach of policy. The economist, Professor David Autor at MIT, acknowledged, "It can suck all the air out of the conversation. All economists should be pushing back against this simplistic view."

Professor Lawrence Katz illustrates this with a nifty calculation: Between 1979 and 2012 the share of national income captured by the richest 1 percent of taxpayers increased from 10 percent to 22.5 percent. Had their share instead remained at 10 percent, and the rest had been distributed equitably among taxpayers in the bottom 99 percent, each would have another $7,105 more each year to spend (Now multiply that for each year going back to 1979. How much does your "job creator" owe you?)

Editor's Commentary:

In conclusion, unless American voters start electing more Democrats from the Progressive Caucus into positions of power, very little will change --- and for most working Americans, they should only expect things to get worse going into the future (Read: How the Rich Abandoned the Us).

Our elected leaders in BOTH major political parties have not taxed the rich their fair (including themselves) to help drive up our debt; they have allowed better-paying jobs to be offshored overseas while weakening our labor unions; they have initiated unfair "free trade" agreements driving up our trade deficits; and they have literally destroyed the middle-class by allowing corporations to rake in excess un-taxed offshore profits while the standard-of-living for most Americans have declined over the past 40 years.

The outsourcing of jobs to China could have only benefited the Chinese economy. Below is a before- and- after photo of Shanghai after the past 26 years of China's growth (which had been averaging 10% a year from 1987 and 2013). That's why America needs to make stuff again.

Wealth inequality in the U.S. is very real, but yet 9 out of 10 Americans would be shocked to learn just by how much. And not only don't they realize how much the top 0.01% rakes in, a great many of American workers don't even realize how poor they are either (having misperceptions about their own class status as well.)

50 percent of all wage earners in the US had net compensation less than or equal to the median wage, which is estimated to be $27,519 a year --- but yet, 42% of them believe they are in the middle-class. Most American workers HAVE NO CLUE AT ALL as to how wealth is really distributed in the U.S.

* In this post I may have "over quoted" from the authors Harold Meyerson and John C. Williams, but it was necessary, not only because of the great content that they each provided, but because of the great significance their information was in telling the time-line and narrative as to how these occurrences correlated with one another to bring us from where we were then to where we are today. I edited (and excerpted) their work (partially for length) with links for more background information as well. My intent was not to take any credit for their writing (as is noted here), but only to provide readers with a better understanding of the scope of the problems that faces American workers going forward.