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This Labor Day, the vast majority of Americans who need to work for a living still have a long way to go before they recover what they have lost over the past four decades. The real (inflation-adjusted) median wage is only about 10 percent above what it was in 1979.
As economist Dean Baker has noted, we can also see part of this transformation of the United States into a more shamefully unequal society if we look at the distribution of national income between profits and labor. If not for this redistribution from wages to profits from 2000 to 2016, the average worker would have an additional $4,000 per year in annual income.
This historic redistribution of income and wealth was the result of choices made by our political leaders and decision-makers. They chose to maintain higher interest rates ― and levels of unemployment ― than necessary. They subjected workers to increasingly harsh international competition while protecting highly paid professionals and CEOs. They increased protectionism for patent holders, including pharmaceutical companies who charge tens of thousands of dollars for cancer drugs that would sell for a small fraction of these prices in competitive markets. They changed labor law so that unions’ bargaining power would be reduced to levels not seen for most of the twentieth century.
The Trump administration claims that workers’ long night is over, as evidenced by the current headline unemployment rate of 3.9 percent; and that they are responsible for the historically low unemployment. But this reduction in unemployment is the continuation of an economic recovery that began under the Obama administration, and is overwhelmingly the result of the policy of the Federal Reserve, not of the president or Congress.
The Fed kept short-term interest rates near zero for seven years (from December 2008) and also created trillions of dollars during much of this period to push down long-term rates.
The Fed is the main determinant of the rate of unemployment; but what the Fed giveth, the Fed taketh way. The Fed began to reverse these policies in 2015; it has raised rates twice this year and is expected to raise them two more times before the year is over.
The Fed has had no valid reason for these interest rate hikes. The Fed targets an inflation rate of 2 percent, but its preferred measure of inflation is still at 1.9 percent. And inflation has been below target for almost all of the past nine years.
Most Americans don’t know this, but when the Fed raises interest rates it is intentionally slowing the rate of job creation, in order to make unemployment higher than it would otherwise be; and thereby putting downward pressure on wages. Since World War II, the Fed has caused all of the recessions in the US except for the last two (which were caused by the bursting of the stock market bubble in 2000, and then the housing bubble collapse in 2007).
Most immediately, the Fed threatens to reverse much of the gains in employment that we have made in the current economic expansion, even though real wages did not even grow over the past year. For the longer term, Trump and his congressional allies have moved to continue the march toward greater inequality: for example, with the tax give-away to corporations and the rich, Trump’s selection of anti-labor and right-wing judges for the federal courts, increasing inequality in education, and other policies.
Reversing labor’s losses over the past four decades will therefore require blocking the Fed from increasing unemployment (or worse, tipping the economy into recession) and then undoing some of the structural changes that have created such obscene levels of inequality.
Mark Weisbrot is Co-Director of the Center for Economic and Policy Research in Washington, D.C., and the president of Just Foreign Policy. He is also the author of “Failed: What the ‘Experts’ Got Wrong About the Global Economy” (2015, Oxford University Press). You can subscribe to his columns here.