Tuesday, September 05, 2006

The Two Economies

Christy at firedoglake has a post up about the economy's role in election year politics which contains a graphic demonstrating the nationwide decline in median wages. She references John Edwards' speeches about "The Two Americas" that he gave during the 2004 election. In them he laid the groundwork for an old-fashioned populist campaign targeted at the working class, which I hope we see again next year. The rich are getting richer while the poor are getting poorer and the middle class is dwindling away as a result.

Yet every indication from the talking heads in the media and from the White House is that the economy is doing just swimmingly. And, from a certain perspective, the Republicans are actually somewhat right in that assessment of the economy (insert your own "stopped clock" joke here). The economy does continue to add jobs, inflation is higher than the Greenspan days but still quite low at around 3%, productivity growth continues, oil prices are declining and the stock market continues on a growth trend begun in June. Those are all positive signs of economic growth, yet anxiety about the economy remains the number one concern of American voters. Why?

The answer lies behind the numbers, as it often does. Every measure of economic growth that Republicans like to trumpet have one thing in common: they are good news to wealthy investors and capitalists but not terribly meaningful to the vast majority of Americans. Yes, business and equity growth is good for the country in the long term. I certainly don't dispute that. But a closer look shows that the benefits of all this growth really are not "trickling down" as a certain sainted Republican president once mendaciously claimed.

Job Growth

The latest jobs report indicates that the economy added about 119,000 jobs over the last month, which is certainly growth. Problem is, economists estimate that the U.S. requires roughly 250,000 new jobs per month to cover population growth and immigration. This means that fewer jobs are being created in the short term than will be needed in the long term. Thanks to the basics of supply vs. demand, this slowed growth puts downward pressure on wages. More workers than jobs means employers have an even heavier upper hand at the wage bargaining table than usual. Good news if you're a wealthy investor or capitalist; not so much if you're a working stiff already facing declining wages.

Low Inflation

Much of our collective worry in America about inflation stems from the 1973 oil crisis, which caused a steep and sudden downturn in our economy. That recession in turn led to a situation where fuel costs drove inflation higher while overall economic growth stagnated. This dreaded one-two punch, called "stag-flation" by many (personally, I hate the term), led to a new conceptualization of the role of government in monetary policy. In effect, the Federal Reserve began using its power to set the federal funds lending rate as a way to head off inflation. And it worked...sort of. The downside to Greenspan's success in holding down inflation is that wage growth is viewed as a key component of the same, while corporate profits are not. Meaning that efforts to hold down inflation often also stagnate or even depress wages, while giving investors a higher rate of return on their holdings. The rich get richer, etc...

Productivity Growth

Productivity growth is the golden goose of Republican supply-side economics. It's certainly what every modern economy wants: proof positive that its economic infrastructure is trending towards greater efficiency and optimal use of resources. However, there is perhaps no other aspect of economic growth that is more "Jekyll & Hyde" in regards to the "Two Americas" than productivity growth. For as long as wages are declining and productivity is growing, the working class is essentially being exempted from the fruits of their labor. The work force is producing more products and services more efficiently and yet receiving a diminishing piece of the economic pie. In fact, it's arguable whether or not this can even properly be called "growth" rather than just a redistribution of wealth from the working class to the investor class. Sadly, a rising tide in this case most certainly does not raise all ships.

Declining Oil Prices

Truly, a mixed bag, are oil prices. A softening of oil prices is certainly an economic plus in almost any respect. Fuel costs directly impact the poorest people the most, as costs for transportation and heating are only elastic to a point. After all, no matter how expensive gas gets here in the Dairy State, I still have to drive my 75 mile commute each day and keep Gifted-1 and the padawans toasty in the winter. Businesses can and do pass that cost through to the consumer, which is regressively damaging down the economic spectrum.

However, in the long term, low oil prices have led us to many of the problems we have today. High pollution rates, inefficient vehicles and a dearth of technologically advanced alternatives are just a few. Our dependence on cheap oil requires us to micro-manage the global oil market, as we represent 25% of the world's consumption. Anyone doubting that America's involvement in the Middle East revolves around this economic reality is fooling themselves. High oil prices encourage conservation and research into alternative technologies. These alternatives help the environment, create new industries, new jobs and advance our scientific and technological prowess. Plus, they begin to ameliorate our need to be directly involved in nations whose people are largely hostile to us after decades of exploitative U.S. energy policy. It's also worth noting that high oil prices actually help a fairly good size chunk of our investor class and work force, in the form of record profits for some of the world's largest corporations. A tough call; I lean towards the long view in that higher oil prices are better, though I think it's high time Big Oil shared some of those profits more equitably. Feel free to use the comments section to explain how wrong I am...

Stock Market Growth

Of all the economic statistics touted by conservative news outlets as signs of a great economy, nothing gets more press time than the stock market. All other indices may be trending negative, but as long as the Dow Jones and NASDAQ close higher, the conservative media is bullish. If you can stand the banality, just watch Fox's "The Cost of Freedom" on Saturday sometime to see this in action. Stock market gains bring out the Marie Antoinettes of the investor class; the plebes can just eat cake as long as that portfolio is growing. The stock market is never a particularly good indicator of anything other than the relative demand for equities. Stocks have long been the best performing investment vehicle over the long term, with a level of risk that is accordingly higher. However, outside of a possible 401(k), the vast majority of Americans either do not invest in stocks or have such paltry positions compared to the overall market as to be largely inconsequential. The market can rise or decline independently of other economic news in the short term, which means that all the face-time granted to the shallow market analysis given on cable news shows is almost entirely faux-intellectual mind candy for conservatives. It bolsters a certain impression of the economy that is largely meaningless in any practical sense to most of the country.

At the end of the day, the question arises again as to whether we're really experiencing economic growth when the vast majority of Americans are being excluded from the benefits of such. The practical effect of declining wages and growing productivity is a redistribution upwards of economic wealth. How much practical meaning does such growth even have when the vast majority of the country is excluded? An even better question would be what do we, as working class voters, need to do in order to rectify this inequality? Edwards rhetoric aside, it doesn't seem as if either political party has done much to help the situation. Republican fiscal policy sees wealth concentration as a positive goal, while Democratic policy seems lost in a post-populist wilderness. I firmly believe that if the Democratic party could only internalize "The Two Americas" into its policy platform, we could turn a close win in November into a bloodbath.

The alternative, the Republican fiscal path, leads down a very dark road eventually. Democracy and aristocracy cannot exist together for long, and the over-arching characteristic of aristocratic economic systems is a lack of opportunity for all but the wealthy. The day that most Americans finally realize that the "Land of Opportunity" has disappeared will signal a fundamental change in our social dynamic, one that could lead to some very ugly, though ultimately necessary, conflicts.

That day is fast approaching...

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