Bush, McCain: Economy's fundamentals are "strong"; Data: Not really
Last week, the Bush Administration announced that the "fundamentals" of our nation's economy are "very strong," revealing yet again a lack of appreciation for the struggles middle class families are now facing. And McCain said almost exactly the same thing last month.
Even though inflation may be down, unemployment "relatively low," and corporate profits "healthy," middle class families are not having an easier time making ends meet. Professor Warren highlighted the economic realities confronting families in testimony before the Joint Economic Committee this week. Her numbers powerfully show that our economy's "strong fundamentals" have not translated into increased standards of living for working Americans.
After adjusting for inflation, median household income has declined by $1175 since 2000. At the same time, the real cost of basic necessities rose, with the average family spending $4655 more on gas, mortgages, food, health insurance, and appliances. Families with children have faced even greater increases, with annual child care costs up by $1508 and average net state college tuitions up by $1050.
This means that Bush's "middle-class tax cuts"--the ones he credits for our strong economy--haven't actually helped the middle class. In 2010, when the tax cuts are fully in effect, the average middle-income family will get a $810 tax cut, not nearly enough to make up for the continuing decline in real purchasing power. Meanwhile, the tax cuts have lined the pockets of the wealthy and drained government coffers of funds that could be used to help average families pay for things like health care, child care, and tuition.
Those who, like Bush and McCain, proudly tout the strength of the economy need to start paying attention to the actual experiences of ordinary Americans. And the next Administration should base its policies on these experiences, not on numbers that don't accurately reflect ordinary Americans' lives.
I heard Bush says this about "the fundamentals', and McCain said it too.
Now tell me, wtf does it mean?
July 27, 2008 4:36 PM | Reply | Permalink
Great. Americans can tell that's a lie so we can hope they'll figure out that they're lying about everything else too.
July 27, 2008 4:43 PM | Reply | Permalink
KB reality check - inflation is not 'down', even gov't statistics say it is the highest in years and likely accelerating. (and some describe gov't statistics are like a kid filling out his own report card)
Inflation hit 5 percent for the year in June, the highest it's been since 1991, but the price increases hitting manufacturers have been far worse. link
July 27, 2008 5:23 PM | Reply | Permalink
NobleCommentDecider is making a really good point. Inflation has returned over the last decade and it's worse than it looks since the regulators ex-out food and energy prices, which are the causes of cost of living increases.
One thing that KB misses is that while all this has been going on, productivity is also up. So working American aren't just losing ground against the cost of living, they're working harder, smarter and better than ever before and are not being rewarded for it. It's criminal.
July 27, 2008 6:44 PM | Reply | Permalink
If higher productivity is the result of capital deepening and this increased capital intensity "is" (fact) the result of owners of firms investing a portion of their profits in better tools rather than taking them as dividends, why "ought" (ethic) workers share in the benefits of this increased productivity?
What makes capital's failure to share the benefits with labor "criminal"?
July 27, 2008 7:21 PM | Reply | Permalink
Ellen asks;
"....why "ought" (ethic) workers share in the benefits of this increased productivity?"
Because, as we've heard thousands of times; we must pay our corporate executives these grand compensation packages to attract the best people, so logically, this thinking has to apply to the assembly line too if we want the best employees, otherwise our productivity will go down because all we'll have working for us will be low productivity drones.
July 27, 2008 7:59 PM | Reply | Permalink
The unequal struggle between managers and owners over the distribution of income among themselves is a different matter, entirely.
July 27, 2008 8:47 PM | Reply | Permalink
And (speaking as an owner) it kinda pisses me off. I want to be able to vote on management salaries.
July 27, 2008 9:19 PM | Reply | Permalink
Ellen says:
"The unequal struggle between managers and owners over the distribution of income among themselves is a different matter, entirely."
No, it isn't a different matter, it directly answers your question, to wit;
"....why "ought" (ethic) workers share in the benefits of this increased productivity?"
July 28, 2008 7:00 AM | Reply | Permalink
I fail to see why the fact that powerful managers have their wage demands satisfied implies that weak workers must have theirs satisfied, as well.
July 28, 2008 7:45 AM | Reply | Permalink
Ellen says:
"I fail to see why the fact that powerful managers have their wage demands satisfied implies that weak workers must have theirs satisfied, as well."
you're lost. Go back to the start;
"Ellen asks;
"....why "ought" (ethic) workers share in the benefits of this increased productivity?"
Because, as we've heard thousands of times; we must pay our corporate executives these grand compensation packages to attract the best people, so logically, this thinking has to apply to the assembly line too if we want the best employees, otherwise our productivity will go down because all we'll have working for us will be low productivity drones."
We're addressing the idea that pay scales attract the best employees. Aren't the POWERFUL managers and the WEAK workers "employees"?
July 28, 2008 11:16 AM | Reply | Permalink
I don't know what you're "addressing," JohnW1141, but I know what I am.
The issue, as presented by destor23, is whether it is fair to workers if they don't share in the net income gains which result from increased productivity.
Personally, I believe that the issue of "fairness" is a red herring. "Power" is what we should be talking about. But the fact that managers, when they have it, assert their power to grab as much of the increase in the pot as possible tells us nothing about either "fairness" or worker "power."
July 28, 2008 11:48 AM | Reply | Permalink
Ellen says:
Ellen, you yourself refer to destor23's post which, while not using the word itself, addresses 'fairness', and you chose to dismiss it as a "red herring" and "address" a different issue, power.
Power is why workers unionize, generally so they can get a larger share of the pie than those with the power afforded them as individuals.
To paraphrase Ben Franklin; We must all hang together, or assuredly we shall all hang separately. (replace "hang" with 'go to the poorhouse')
July 28, 2008 1:15 PM | Reply | Permalink
Ellen, do you actually believe that all of these productivity gains are the result of technology investors made by owners? Doesn't square with the fact that Americans work more hours per week than most or that they don't take their full vacation days... Yes, technology has helped but people are working harder. Much of the technology, which I love, is used to keep people working 24/7. I just got done answering work emails via my laptop and it's a Sunday night...
July 27, 2008 8:29 PM | Reply | Permalink
If you'll scan your last five F.1040s and email them to me, I'll respond -- the problem with anecdotes, n'est-ce pas?
From computerized machine tools and diagnostic tools and platforms, from smart check-out terminals, from just-in-time supply regimens, from transactional efficiencies resulting from improvements to software support and communication facilities -- the list goes on and on -- capital investment has generated productivity enhancement.
P.S. Stop answering your emails for two weeks. I promise you nothing bad will happen, and in the future you'll be getting a lot less of them.
More Smart -- Less Hard
July 27, 2008 9:06 PM | Reply | Permalink
Actually, more smart and less hard is fantastic advice.
But... I really can't not answer my emails for two weeks. It is true, if I did, I would get less of them. But I'm better off getting more of them. Knowledge work and all. Actually, call is knowledge and access work.
And, yes, you're right that tech has helped. My ability to answer emails on a Sunday night does make me on call most of the time, but that also means that if I need to sneak out of the office for a 2 pm dentist appointment, well... it means I don't have to sneak, I just go.
That said... what the American worker has done for the last 3 decades is amazing. There really has been more, harder, better and smarter work done. And wages haven't kept pace, except in the executive suite. How is that fair?
July 27, 2008 11:45 PM | Reply | Permalink
As an aside I see nothing wrong with pointing out to workers that their share of gross national income has been slipping and that Republican policies are responsible.
Power to the People -- instead of to the plutocracy.
Nothing wrong with that; in fact that's what politics is all about -- power. And in a democracy workers have the votes to get what they want; they don't need to claim to be the "deserving poor."
July 28, 2008 12:55 AM | Reply | Permalink
If you are suggesting that the term "criminal" is overwrought, I think I agree. As to the question about "ought", though... JohnW and destor have part of the answer: the owner's capital are "lent out" to the workers ("labor") to some degree, and it seems to me to be fairer—and perhaps more importantly, more productive in the long run—to let the workers share (significantly) in the resulting increased output.
More importantly at this point, I think the owners of the capital should be fearing labor retaliation (up to and including riots) right now, not "at some point in the future when things get worse". I went from "concerned" to "worried" when I heard my doctor (an MD PhD, of normally sober disposition, who does both family practice and emergency medicine) make remarks about wanting to have a new French Revolution and/or to take his own family to a mountain hideout. I have no doubt that he was merely "letting off steam", as the saying goes, but if he has such steam, I think it is time to worry.
July 27, 2008 9:17 PM | Reply | Permalink
The "owners of capital" are, in the main, pension funds, endowments, individual 401(k)s and privately held mutual funds -- in a word, the upper three quintiles, a group without whose participation no revolution can be successful and one which will never revolt until it has lost the benefits of being "owners" and has been pauperized. Frustration is never enough.
I regularly challenge the assertion -- advanced without argument as if the conclusion were self-evident -- that workers have a claim on a portion (how much?) of increased productivity, because I don't believe a fairer distribution of the economy's benefits can rest on such a questionable premise.
It's up to the proponents of this argument to 1) prove it and 2) make it operational -- that is, describe the formula for making the appropriate award. Until they succeed, it's all demagogy.
Note: Workers may be strong enough (labor unions, unusual skill sets, etc.) to grab a share, but that's a matter of pure power -- not ethics or moral suasion.
July 27, 2008 10:00 PM | Reply | Permalink
I'm curious. If workers' remuneration has steadily fallen over decades as a percentage of the `pie`, doesn't that imply that at least some productivity game has been due to them?
July 28, 2008 12:09 AM | Reply | Permalink
sorry about the typo. I meant gain, not game.
July 28, 2008 12:10 AM | Reply | Permalink
Why?
All you have there is an "is"; you can't get to "ought" (that is, share "due" workers) from "is." See, David Hume
You might try an argument from custom. The problem, though, is that we don't have a long enough history of some particular worker share of, say, gross income to give us a base from which to argue.
July 28, 2008 12:38 AM | Reply | Permalink
Why do you assume I'm preoccupied with a moralistic `ought`?
I could just as well be taking a hugely pragmatic
`social contract` type approach. ie you of necessity give sufficient reward to workers to keep them in their place. Grind them into the dust and you'll have a revolution on your hands.
In fact, yes I do find it morally repulsive that yuo have captains of indusry/capital getting multi million payoff packages when they've failed, while workers are falling farther and farther behind.
I suppose I shouldn't have been but I was actually shocked when I discovered the other day that your minimum wage is only $6.55 an hour. I can't wrap my mind around that - that anyone could survive on it or that anyone considers it a realistic, viable adult wage rate. (Our is, in US$'s, $13.70 and I think *that's* pitiful!)
July 28, 2008 1:20 AM | Reply | Permalink
There are two answers to your question. The first you can find in Vol. I of Capital and is too long to write here. But there is a second and more intuitive answer. In the ideal version of the invisible hand, workers are supposed to be the recipients of productivity increases. In other words, competition forces innovation to lower costs and thus prices. Real wages should increase, all else equal. The problem is that monopoly power interrupts this process. Prices don't fall as they should despite productivity increases, and profits increase, while real wages do not. Make sense?
July 28, 2008 3:18 AM | Reply | Permalink
Real wages should increase, all else equal.
Unless nominal wages decrease.
And leaving custom aside, there's no necessary reason why they wouldn't -- workers thereupon being left with the same buying power they had before the productivity increase -- that is, "all else [truly] equal" for both owners and workers.
Sauce for the goose is sauce for the gander?
July 28, 2008 8:07 AM | Reply | Permalink
"Unless nominal wages decrease.
And leaving custom aside, there's no necessary reason why they wouldn't..."
I'm sorry, but this argument is ridiculous. I think you miss the point of "all else equal". You see we hold nominal wages constant for the sake of argument. If you truly believe that in the current situation nominal wages have been rising thus keeping real wages constant that is one thing. However, that does not relate to the argument that productivity increases should (in the idealized version of the invisible hand) go to workers.
July 29, 2008 8:36 PM | Reply | Permalink
Ellen says:
"...because I don't believe a fairer distribution of the economy's benefits can rest on such a questionable premise."
Does this mean that you believe there is an unquestionable premise for a fair/fairer distribution of the economy's benefits?
July 28, 2008 7:11 AM | Reply | Permalink
Correction: I shouldn't have said "fairer" when what I really meant was "different."
July 28, 2008 7:37 AM | Reply | Permalink
bush and mcsame ain't missed a meal yet, so the economy is fundamentally sound
it works for them ...
July 27, 2008 9:40 PM | Reply | Permalink
OK folks, it's time for some new considerations in this kind of discussion....
* Labor - without capital, direction for use of said capital, and oversight, is just people standing around with nothing to do. That's not a put down, just reality. Envision day laborers in front of a Home Depot.
* If you go to the appendix vetting the figures used here in testimony, the median household income declined $716 not $1176, or well within the $812 tax cut.
* That being the case household income adjusted for inflation is dead flat, not declining. That may not sound good, however....
* We are now globalizing which means that the US no longer has the last word on much of anything. Workers here have to compete with workers in China and elsewhere. That is the real reason income hasn't progressed.
Inflation. One cannot have inflation while home prices, and wages are flat to declining. Inflation is rising prices of everything. When specific things are getting more expensive it's because they are being bid up, as in an auction.
Executive compensation, is not the same as executive salaries. Stock options are the major portion of compensation for two main reasons. 1) Taxes. The reason Warren Buffet pays a lower rate than his secretary is that most of his money is received in dividends and capital gains, not salary. 2) Incentive. If an executive does well via the stock price he prospers. It seems appropriate, no?
July 28, 2008 8:31 AM | Reply | Permalink
Hi Shooter,
I think we generally agree, but I'm skeptical about a few things.
I wouldn't so quickly conclude that real purchasing power has been steady. Although that's true for the average "household," those households include individuals, unemployed people, and the very wealthy. It might be more useful to look at some fixed expenses (e.g., health care and mortgages) that have really zoomed up. A mortgage (according to the testimony) costs more than $1700 more per year now than it did in 2000. That means the $1700 has to come from somewhere else, or the home purchaser defaults. I agree, however, that the tax cuts may have eased this.
So, let's say you're right, and real income is about the same over the past 6 years. Six years of consecutive growth, as the Administration would note. Real income over that period is just about flatlined. Compare that to what happened during the 80s and 90s booms, when real income went up 10 percent. The ordinarily comforting idea that declines during a recession will be overcome by gains during the boom might not be true this time. If there are little to no gains during the boom, just how bad could the ensuing recession be?
Also, I agree that labor without capital is just people standing around. Of course, the flip side is that capital without labor is just cash and machines sitting on a factory floor.
July 28, 2008 10:14 AM | Reply | Permalink
Ellen says:
In that case, does this mean that you believe there is an unquestionable premise for a different distribution of the economy's benefits?
July 28, 2008 1:18 PM | Reply | Permalink
There are no "premises" -- questionable or unquestionable.
There is only power, and because economics is a very rough science, it is not even possible to show that the exercise of that power maximized the result desired by the winning class/group -- that is, that a maximally satisfactory result might not have been achieved by a different path than the one chosen.
July 28, 2008 1:44 PM | Reply | Permalink
Ellen,
your posts sometimes seem surreal.
July 28, 2008 2:31 PM | Reply | Permalink
Hello chembugs,
Skeptical is always good.
The first rule of skeptical is that one really understands information proffered. It's a small point here but "median" is the middle number in a group, while "average" is an abstract number. The easy way to remember this is that when Warren Buffet walks into a room the "average" networth is huge, but the median isn't.
This is why I hate doom and gloom scenarios. It's just scaring people for the sake of a few more eyeballs.
Consider that the US has been through a burst stock bubble, an attack that shocked the entire country, two ongoing wars, a burst housing bubble and credit deflation, and all the while national leadership has been derided, disputed, and despised by nearly everyone. And yet here we are, still in one piece, and ready for a historic shift in national attitudes come November. Rather than being down in the mouth, it seems to me to be an opportune time to look forward.
True enough, but the reality is that it's much easier to get labor, than cash and machines. MUCH easier. In fact it's the single biggest reason the third world is cleaning our economic clock. But this too shall pass.
July 28, 2008 1:42 PM | Reply | Permalink
Watch their take on thoes "market fundementals" change in another month or so when speculative investors in the price of oil start loosing money because Americans have collectively reacted to $4 a gallon gas by driving less. Watch Bush suddenly want to do something to help out thoes poor "whining" speculators. Then we will know who the real "whiners" are here.
July 28, 2008 2:24 PM | Reply | Permalink
Perhaps Davol, you should read above where I explain that for all futures contracts there are equal amounts of gains and losses no matter what the price move.
The real whiners will be the ones who profit most from the sales of gas. Government. They make more profit from gas, than all the oil companies combined.
July 28, 2008 2:33 PM | Reply | Permalink
Well I read all the shooter242 posts up above and see no mention of futures contracts at all. It also strikes me as just plain not true that government makes more profit then "all the oil companies combined" in light of the fact that Exxon alone has broken all historic records for profit at least twice in the last 5 years, and government happens to be non-profit.
July 28, 2008 2:46 PM | Reply | Permalink
Sorry Davol, I was thinking of a different thread. The deal with futures is that for every person that makes money, another person loses the exact same amount. There cannot be a buyer without a seller, and vice-versa. So, when you put all the winners up against the losers, it comes out to zero.
As for whether Government is non-profit, they take home more money than Exxon, and with no investment. According to this site in 2004 the entire oil industry had profits of $42B while Government made $58B in taxes. That sure looks profitable to me.
http://www.taxfoundation.org/publications/show/1139.html
July 28, 2008 5:23 PM | Reply | Permalink
It doesn't matter whether you are Republican or Democrat. Our Federal Government is in la la land when it comes to economics. The Federal Reserve is intentionally debasing the dollar by printing money like its going out of style to bail out banks and try to avoid a repeat of the Great Depression. Actually, they are making it worse.
Fiat currencies throughout history have always resulted in a failure due to hyperinflation. This happens because their is no monetary discipline of the bank/goverment in charge of it. They figure out they can get free money by printing it, and it becomes the way to pay for things they can't afford. Over time the currency becomes so diluted, it fails. The U.S. dollar is approaching that state. IMHO, the only way to protect yourself is to make sure your investments and savings are in something with intrinsic value such as Gold. At least put a significant portion of your portfolio in Gold, just in case. It would be even better to take physical possession of it as an emergency hedge against the failure of the dollar. It may not be easy to liquidate immediately to meet needs, but it will preserve some of your wealth as a new currency is established.
July 31, 2008 5:12 PM | Reply | Permalink