December 14, 2014
The Washington Post ran part one of what promises to be a very good series on the plight of the middle class in the United States over the last four decades. After noting the lack of wage growth in the 2000s the piece tells readers:
“Jobs came back more slowly, if at all. Even before the 2008 crisis, the 2000s were on track to be the weakest decade for job creation since the Labor Department started tracking the statistics. The great mystery is: What happened? Why did the economy stop boosting ordinary Americans in the way it once did?”
It’s not clear what is mysterious in this story. The economy was being driven by bubbles in both the late 1990s and the 2000s. When the stock bubble burst the only way to replace the demand was the housing bubble. When the housing bubble burst there was nothing to replace the more than $1 trillion in lost demand due to the collapse of residential construction and housing wealth driven consumption, as some of us said at the time.
The only mysterious aspect to this story is what anyone thought could replace this demand. Did they anticipate purchases of U.S.made goods and services by Martians?
More generally we have had a government committed to redistributing income upward for the last three decades. Currently President Obama is pursuing a trade deal that is designed to raise the price of drugs (current spending is around $400 billion a year — this is real money) and get more money for the entertainment and software industry. He refuses to include any steps designed to reduce the trade deficit (i.e. lower the value of the dollar) which would be one obvious way to replace the demand lost by the collapse of the housing bubble.
And, these trade deals are likely to do almost nothing to increase trade in highly paid professional services, like those provided by doctors. (Many doctors are in the top one percent and virtually all are in the top two percent.) This allows pundits to run around saying that workers are losing out to an inevitable process of globalization and somehow never notice that doctors and other highly paid professionals have been deliberately protected.
And the Federal Reserve Board seems likely to raise interest rates next year for the purpose of slowing growth, which will prevent workers from getting jobs and seeing pay increases. The Fed has helped to keep the unemployment rate much higher in the years since 1980 than in the decades before as Jared Bernstein and I point out in our book.
In short, it seems pretty obvious what has happened to the middle class. The government has designed policies to help the rich at their expense. It’s not clear what part of this story is mysterious.
Comments