From JTO
There is a very important chart making the rounds of the policy wonks that I tripped over a few months back that I found very disturbing. It is bound to be Exhibit A in the election this fall. It was developed by the Economic Policy Institute and shows U.S. productivity and wage growth 1948 – 2012. The chart shows productivity growth for the overall U.S. Economy over this period climbing at a steady, even pace – amazingly consistent over time – for over five decades. Then it shows median wage growth which climbs in tandem with productivity growth 1948 – 1978, but then goes almost completely flat 1979 – 2012.
Here’s the chart that JTO is describing (provided by JTO) from the Economic Policy Institute. These figures and all others that we post are captured by a $20 program that you can buy on the Internet. It’s called “Faststone Capture“. It is very easy to download and intuitive to use. JL
Legend to Figure A:
I was literally stunned by this – and disturbed – when I realized it’s implications. This is highly aggregated, very long term data. Productivity growth, which is measured simply as growth in GDP divided by the number of people in the labor force,is the measure of wealth creation in the economy. thought of simply, if GDP consisted of the manufacture of ten automobiles, produced by 10 workers, and Henry Ford figured out a way to build 11 automobiles with the same 10 workers, then GDP growth and Productivity growth would both be 10%. (Measurement gets more complicated than that, but thats the idea. So productivity growth is both the means and the measure of the increased output of our economy.
So what has happened is that something changed in our economic system so that while the benefits of productivity growth were shared by workers from 1948 – 1978, after this, they quickly shared less and less in the continued productivity (i.e. Wealth) gains in the overall economy.
So then I saw this chart again, and someone had added a second vertical axis opposite the x axis to show labor union membership, and this showed the decline in the portion of the work force belonging to unions and guess what? Beginning in 1978, union membership began declining at an accelerated rate in correlation with flattened real wages 1978 – 2010.
So it makes me think of the German model of manufacturing policy. In the 1970?s the Germans were in the same predicament as the U.S. with a large, highly paid,highly skilled manufacturing work force with strong political influence and facing strong competition from Japan, especially in the Auto/Steel/Glass industry at the center of their industrial sector. They worked with their unions to develope a new industrial policy that focused on retaining precision and technology manufacturing and retraining unskilled workers to skilled positions. So while Germany has lost manufacturing jobs steadily, it has retained a strong manufacturing base with better skills and wages. In the U.S., by contrast, we had the investor class – the Bain Capitals of the world – simply take these companies over, chew them up, and spit them out. Or, as with GE, simply gradually move their operations overseas to take advantage of cheap labor and low or nonexistent environmental standards.
Why can’t we do better than this?
From the Economic Policy Institute (JL)
John thank you very much for retrieving this chart – I could not figure out how to copy it. The one I reference is at the EPI site article #4. It is so important because it shows what has happened to the middle class in this country over three decades – stagnant real wage growth followed by a huge hit to accumulated wealth (37%) in the recent recession, and the remaining employed middle class paying taxes twice as high as the investor class for the purpose of bailing out the investor class who are the ones who blew the lid off the system in the first place.
When you step back and look at the situation, it is really disturbing.-the long term undermining of the economic strength of the country’s middle class – once the envy of the world. Thus my banana republic analogy.
And Mitt Romney just the other day called Dodd-Frank, which the banks are fighting tooth and nail in the regulation drafting process, and which is already watered down with loopholes, “an assault on economic freedom”. In light of recent events at JP Morgan, this guy is completely off his rocker.
Not to bore Sverige, but I have to comment on the job recovery chart. The Reagan recession/recovery 1981-85 is the second worst recession, by length and depth of unemployment, since WWII, caused largely by a major restructuring of the manufacturing sector of the economy and loss of millions of manufacturing jobs to overseas facilities, mostly by our own domestic based, transnational companies.
The subsequent recovery 1984-85 showed very strong GDP and employment growth and this is often trumpeted by Republicans as evidence of the power of “Reaganomics” or “Supply Side” economics.
However, I always saw this as a classic Keynsian fiscal approach which combined large tax cuts, large increases in public spending for defense, and followed, after the recovery, with a large subsequent tax increase. I sometimes wonder if the smart guys around Reagan, like Cap Weinberger, knew this was a classic Keynesian solution , but did not call it that for political reasons related to their base.
I just wish people could look at the problem more objectively, lose the ideology, and get us out of the current slump more quickly using the requisite tools that are available.
BTW the article above on wage/productivity growth was accidentally truncated – the remainder is in comment #16 below – sorry.
John- go to http://www.EPI.org. Just under the title at the top of the page in the center are four tabs for four articles 1 2 3 4. You can push the 4 tab or just wait as they flip through. Article #4 is titled “Understanding the Divergence of Pay and Productivity” – it is top center of the main EPI home page. Scroll down to Exhibit A which is the chart I am referring to. Sorry I am not better at this but this is way worth retrieving and is the heart of the debate over the economy.
I suspect Obama is laying back, as the Republicans irrational debt-hysteria formulation dries like cement, then his campaign is going to be built around this theme as it ought to be. How about the middle class getting their country back
from the plutocrats – after all we and our forbears built the place.
The upper 1% to 5% would look at these graphs and conclude that unions were inhibiting productivity by maintaining undeserved wages. However the graph of productivity appears to be increasing at a constant rate over many decades as unionization started to decrease. The other side of the argument is that the upper 1% is reaping the rewards of suppression of the wage earners true value that was lost as a result of deunionization.
Having lived in the 40s, 50s, and 60s I have often reflected on our reduced standard of living in the 80s, 90s, and 00s compared to the standard of living in late 40s, 50s, and 60s.
I was in Europe in the summer of 1966 and had a room for $1.76 a night for a month in Barcelona, $7 a night for two weeks in Rome a block from the Spanish Steps, and a room on the Left Bank in Paris for 2 weeks for $15 a night. Today these lodgings would be hundreds of dollars a night. It was in the late 70s when we saw European tourism rise dramatically in the US followed in the 80s by Asian tourism. The tables have been turned because our wage earnings have not kept pace with productivity.
Do I have this right?
This decline in prosperity of the 95% seems also to be correlated with our ability to recover from recessions.
Thanks for retrieving these especially the second one showing union membership. We will turn you into an economist yet! So now think back the past 30 years and think about what we have done to the U.S. middle class – just mind-blowing.
Robert Reich referenced this chart when speaking to a OWS protest last fall in Berkeley where he teaches now. So if the economy produced all this wealth, year after year, and it not go to the middle class- where did it go? in Reich’s words:
“WHERE DID THE MONEY GO? WHERE DID THE MONEY GO?”
I can’t speak for anyone else, but for myself, while still employed, I am working harder and longer. Benefits are being cut, health care costs rising, no pay raises.
I was talking to my colleague, Ben, at work about this economic situation in the European Union. He pointed out that in addition to Germany maintaining its manufacturing base by working with the unions, they managed to incorporate East Germany after the wall came down at a huge expense.
I can’t answer the question about hotel rooms because I have to think it through. But your comment about living standards is right. Just think about it simply – most households had one wage-earner and lived a basic middle class lifestyle, bought a new car evry several years, sent the kids to college, went on a modest vacation every year, etc. Now most households have two wage earners and struggle to make ends meet. My neighborhood growing up in the sixties was characterized by a mix of blue collar and white collar workers – cops, firemen, dentists, doctors, lawyers, barbers – pretty socially integrated. Now the neighborhoods and towns are much more segregated by white/blue collar occupations and incomes as well.
I have a business contact, an industrial investor, who spent a week every month for over a year in East Germany just after the wall came down. He said it was just amazing how quickly the West Germans organized an infrastructure reconstruction program. Within a couple of years, the rail, bridge and freeway infrastructure had been entirely rebuilt in East Germany.
T
There was an interesting article in the WSJ today about the Burnt Mill steel plant – 3,300 acres, several million square feet under roof along the shore of Lake Michigan near Gary, Indiana south of Chicago, with 6,700 employees. The plant closed in 2002 and was bought by an Indian steel magnate, who has assembled a string of plants worldwide that had been abandoned. The plant has been revitalized through automated procedures and is now one of the most efficient steel plants in the world with 3,00 employees and increasing production. Analysts say the guy is simply following the basic principles developed by Andrew Carnegie a hundred years ago, just the modern version.
So why couldn’t someone here have done this?
It’s stories like this that make me wonder if we just gave up on our basic manufacturing sector. Or maybe our investor class found that with tax subsidies, they could strip them down sell them for scrap at short term profit. Or maybe transnational owners found they could move facilities overseas, write off the closed plants, and take advantage of cheaper labor and lower environmental standards overseas.
Burns Harbor is producing the same amount of steel with half the people, according to the article you reference.
Mitt Romney could have done this, its his line of work, but then people would be complaining not praising!
This trend is responsible for creating many problems in American Society as well as the American Economy….(see Con’s new article. Admin).
Doubtful – i don’t think Obama is stating we should not have private equity funds. He is saying it is not necessarily a qualification for the presidency. There is a difference between how an economy works, and working to insure everyone who wants a job has one, and earns a reasonable income from it, and running a private equity fund and making private, profitable investments. Mitt Romney has cited his experience at Bain as his primary qualification, and stated it has provided him the ability to fix the economy, but he does not say HOW.
MITT Romney was NOT a Venture Capitalist.
Now that the term Private Equity Firm has become a sort-of dirty label, Mitt has taken to also calling himself a Venture Capitalist. Like it’s name, Venture Capital is about investing in ‘Ventures’ – usually a bunch of rich people form a Limited Partnership and pool money. That is Fund I.
Fund I sets up an office where all manner of entrepreneurs come to pitch their idea for a Start-Up company and the Venture Capital Firm chooses the best ones and gives them the money to start a company. That creates jobs, period (though it’s the entrepreneur who does the real hiring and deserves credit).
Private Equity does NOT invest in Start-Up companies, but usually does a Leveraged Buy Out (or some other fancy take-over) of a mature company that’s usually in trouble. A company in trouble usually needs some fat to be trimmed so they FIRE people. That is not job creation, though it IS a necessary part of a successful capitalist society as long as there is no abuse or unethical behavior (that last bit goes for ALL of capitalism, of course, which is why Regulations exist – NONE of these people seem capable of NOT abusing or being unethical without regulations!).
And, yes, it’s 100% true that running a Private Equity Firm has ZERO relevancy to being The President. It is NOT a qualification, not by a long stretch!
Mitt is losing credibility big time with this misleading garbage.
JTO –
I meant to say in previous comment: I agree that Obama’s message is that Mitt’s experience in private equity doesn’t qualify him for presidency and I agree with that analysis, just as qualification as an Electrical Engineer doesn’t qualify one as a Mechanical Engineer – not by a long shot and those two are far closer than private equity and Government. It’s even hypocritical to claim it if your Mitt Romney and you insist you are against any kind of bail out or Governmental interference, given that private equity work he did nearly always involved direct intervention with a sick or weak company.
I heard on the radio that Obama’s ‘car czar’ (helped run the effort to save auto industry) just published an op-ed piece in NYTimes on this very subject after Romney used an out of context sound byte of his because he had also been in private equity (which helped qualify him for addressing the sick auto industry).
Con is right again on the VC/Private Equity distinction…. (see JTO’s new article. Admin.)
These charts only make sense in ideologically loaded “economic” or “economist” terms in which less money in, more money out = efficiency. This is an absurd capitalist way of thinking that treats human beings as a means to an end; as worker units; as less then slaves. Efficiency is, in the real material world without the superimposition of idiotic, self-serving capitalist ideology, greater material output for effort; effort being time and personal energy. This applies to service workers also; who invariably sell a material circumstance eg. a cleaned room instead of a messy one. I encourage people to start thinking outside of the box capitalist media and other circumstances have put you in.