We’re nearing the latest Presidential campaign here in America, and on Control Congress especially, there seems to be a lot of anxiety over economic issues. I share in this anxiety, but my analysis of what plagues us is often very different from John’s and that of other posters. My number one concern heading into 2008 is that distraction will win out once again, as the basic tenets of economic theory go ignored in lieu of things like the debate over immigration. The problem I have with illegal immigration isn’t that it deprives jobs from native Americans, but that it lowers wages across the board. Employing illegal immigrants is a crime, and the risk/reward is such that employers are likely to commit that crime because it benefits them in so many ways. The largest benefit to employers is that they no longer have as many obligations to their labor force as they once did. An illegal worker is someone who is scared, and this reality tilts the scales unfairly towards their employer. When this group is exploited in such a way, it adversely effects the wages paid to legal workers.
Organized labor has been demonized by big business and the political party that represents them, and the laws that protect workers have been diminished or underenforced since the 1980s. No longer is an employer charged with a crime when they fire workers involved in organizing a union. By the same token, workers who might organize and serve as an internal check on a company’s exploitation of undocumented laborers, instead are forced to keep their head down. Meanwhile, the real wage of low income workers has been outpaced by inflation year after year, while the compensation paid to CEOs and other top positions in US corporations has gone from 40 times what a low wage employee earns in the 1970s, to over 550 times that amount in the late 1990s. To compound this problem of inequality, starting in the 1980s, taxes paid by the top 1% of earners has gone down over 50%, while taxes on the middle class have gone up. Look to the incredible growth in debt obligations from 1980 to today, now totaling well over $7 trillion, and only the most intellectually dishonest person capable of operating a calculator will argue that this isn’t a direct result of tax cuts.
Middle class families and low income families spend everything they make, with savings rates at times in negative territory due to the amount of debt each has taken on in order to purchase homes, cars and pay the bills. When the credit dries up, and millions fail to make mortgage payments, lose their jobs or get sick without having insurance, not only do they individually suffer, but their purchasing power is diminished. When wages fail to keep up with inflation, over time people spend less money and drive less. Demand diminishes, supply must react through the elimination of jobs, and GDP growth lags compared with historic periods where the income gap was much smaller. Anyone interested in learning about the effect of the income gap on GDP growth, can focus on the economies of the 1950s and 1960s to get a taste of what I’m laying out here. The American middle class is what made our country’s strength legitimate. Meaning, the economy wasn’t reliant on so much risk, credit, government spending on military production, and two income households.
Conservative economic policies have been given their chance to work since the early 1980s, and when the economy is discussed today, we’re not talking about the income gap, regressive tax policy or the decline of organized labor. Why is that? Certainly these factors have played a large role in reducing the middle class, while also creating the insane amount of debt we are burdened with today. Yet for the most part they go ignored in lieu of immigration or trade policy. It is obvious that both of those issues effect the economy, both with the lowering of wages and the export of manufacturing jobs, but if we continue to act as if those two factors alone have brought us to where we are today, then we’re missing the bigger picture. Not only that, but we’re ignoring the most fundamental truths about supply and demand. Even more importantly, we’re ignoring our own history, and the economic policies from that history which actually worked to the benefit of most Americans. Right now we’re living on borrowed money as a nation, and while wages lag in comparison with inflation and productivity, it is time for all of us to take a look at the arguments put forth in favor of the economic policies of the past 25 years, and honestly evaluate which ones were wrong based on the facts.
I think that regressive taxation and the income gap are two areas that can be fixed through legislation, and without the type of costly police or foreign policy initiatives that could be rolled out with the type of attitude that made our occupation of Iraq such a nightmare. At this point I’m more confident in the not-so-sweet science of economics than I am our ability to affect favorable change through large idealistic initiatives. There are things that can be done, and just because it clashes with the conventional wisdom of political economists (most of whom have been wrong about most things in the past 25 years), they shouldn’t be pushed aside. Let’s expand the arena of economic debate leading in to 2008, and make the case for what can be done at the lowest cost to achieve the highest benefit.
