A Change That Isn't Coming

After the midterm elections a lot of my Democrat friends were demoralized. In their estimation Obama had helped America claw her way out of the pit of the Great Recession that started with the financial sector collapse in 2007 under George W. Bush. And yet, exit polls from the midterms suggested that there remains a lot of angst about the economy in America and the President's party was punished for it.

These observations have led to a lot of head-scratching. Obama saved the US economy. So why is he being punished over the economy?

Consider, by way of illustration, this letter to the editor shared by Andrew Sullivan written by a Canadian and published in a Detroit paper:
Many of us Canadians are confused by the U.S. midterm elections. Consider, right now in America, corporate profits are at record highs, the country’s adding 200,000 jobs per month, unemployment is below 6%, U.S. gross national product growth is the best of the Organization for Economic Cooperation and Development (OECD) countries. The dollar is at its strongest levels in years, the stock market is near record highs, gasoline prices are falling, there’s no inflation, interest rates are the lowest in 30 years, U.S. oil imports are declining, U.S. oil production is rapidly increasing, the deficit is rapidly declining, and the wealthy are still making astonishing amounts of money.

America is leading the world once again and respected internationally — in sharp contrast to the Bush years. Obama brought soldiers home from Iraq and killed Osama bin Laden.

So, Americans vote for the party that got you into the mess that Obama just dug you out of? This defies reason. When you are done with Obama, could you send him our way?
America seems confused. As another example, consider how many states last week voted for Republican representation while on the same evening voting for minimum wage increases for their state!

That's just really, really weird. So what's going on?

Let's look back at the letter above from the Canadian observer. Yes, many metrics show that the economy is growing. But look at the metrics that are mentioned: Record high corporate profits, growing GDP, stock market near record highs, and low interest rates all culminating in the fact that "the wealthy are still making astonishing amounts of money."

And that's the problem. The wealthy have bounced back from the Great Recession. But the middle and lower classes?

Not so much.

Both income and wealth inequalities continue to plague America. For example, a recent study has found that wealth inequality in America is the worst it has been since the Great Depression.

Ponder that. Since the Great Depression.

From the Christian Science Monitor article summarizing the study:
Recent economic growth in the US appears to be positive and steady. The latest jobs report for October saw unemployment drop to a six-year low and the economy add 214,000 jobs. But while more people appear to be working, America's overall wealth is being concentrated in fewer and fewer hands.

According to an analysis of data sourced through 2012 – including detailed data on personal income taxes and property tax – Professors Saez and Zucman found that the richest 0.1 percent of Americans have as much of the country's wealth as the poorest 90 percent...

An even closer look at their data has shown that while the growth of the American middle class has been restricted by modest income growth and soaring debt – thanks in large part to the 2008 mortgage crisis – the super-rich have been making significant gains in income and wealth.

While the bottom 90 percent of Americans and the top 0.1 percent control about 22 percent of the country's wealth each, the top 0.01 percent of Americans now control 11.2 percent of total wealth. That share of the wealth held by the country's richest 0.01 percent – a group of roughly 16,000 families with an average net worth of $371 million – is the largest share they've had since 1916, the highest on record...
This is the problem noted above. Yes, there are metrics of increasing economic success. But that success is not being shared. It is being increasingly concentrated among the upper 1% and .1%. 

That's wealth inequality. Problems also exist when we turn to wages and income.

For example, since the 1970s wages have been increasingly divorced from productivity (the growth of the output of goods and services per hour worked). While productivity has continued to increase wages have basically flatlined:

As summarized by the EPI article regarding this graph:
This divergence of pay and productivity has meant that many workers were not benefitting from productivity growth—the economy could afford higher pay but it was not providing it. 
I think all this goes a fair way in explaining America's confused electorate.

On the one hand the economy seems to be doing well. But these successes have been largely concentrated among the very wealthy. The middle and lower classes are still struggling. Thus the paradoxical voting. Voting for a change in current leadership (i.e., for the Republicans) while voting for minimum wage increases, a policy Republicans tend to be against.

Basically, the midterms were a cry for help. A confused cry, perhaps, but a cry of help nonetheless.

And here's the sad thing about all this. The pain is only going to get worse. Neither party has good policy recommendations to address the relevant dynamics at a deep structural level.

For example, Republicans have no political resources or incentives to address wealth and income inequality. The only fiscal policy Republicans tend to bring to the table is tax reform. And taxes, we know, are close to historical lows. There isn't a whole lot to be done on that score. Regardless, "cutting taxes" for the rich or for corporations isn't going to fix the wage/productivity divergence.

And yet, Democrats don't have any good ideas either. As Josh Marshall writes at TMP:
Democrats have toyed (and I use that term advisedly) with the issue of rising inequality for the last two elections. But let me suggest that as a political matter inequality is a loser. What is driving the politics of the country to a mammoth degree is that the vast majority of people in the country no longer have a rising standard of living. And Democrats don't have a policy prescription to make that change.
Why? Because, Marshall notes, taxing the rich and voting to increase the minimum wage--the two main policy recommendations offered by Democrats--only tinker with the extremes and do not address what Marshall contends to be the root problem: the aforementioned gap between wages and productivity.

And until the two parties put forward lasting and structural fixes for these problems the pain and outrage are only going to intensify. And as the pain grows the American electorate will continue to lash out blindly and schizophrenically, alternately punishing the party in power and hoping for a change that isn't coming.

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39 thoughts on “A Change That Isn't Coming”

  1. In the 1980s Wendell Berry's book of essays What Are People For? lamented how the power of machines was replacing human work. Berry never--if I recall correctly--prescribed a solution to the "deep structural" problem driving the obsolescence of human labor. Instead he brought the problem to our attention. (A bit prophetically, in that your graph shows the separation between wages and productivity around the time he worked on the essays. But then, he's a farmer, and the displacement of human labor with machines was about a hundred years old in agriculture by 1980.) The problem is obvious enough: a combine can harvest 80 acres of corn in an afternoon, which used to occupy a farmer an entire fall; a truck can take a 50,000 lb. load across the country in four days, while mountain passes used to delay 50 teams of horses with drivers for entire seasons trying to carry the same load; etc.; etc. Quite a boon to those few who are able to own the increasingly powerful and increasingly expensive technologies. And quite a blow to those who are at the bottom... That's the structural inequality. It's been there all along (Marx w/ his focus on giving the workers the means of production), but the exponential rise in our ability to apply technology to labor began with the information age--as the graph shows.

    I suppose that governmental policy could pull support from large corporate players and direct it toward artisan and boutique goods. As a counter to the horrible effects of factory farming, for instance, this would be justified. The Church, by the way, could lead on this. Unemployed people could be employed to grow, raise, and make healthy, environmentally neutral or beneficial, and interesting food. What was that about the CoC focusing on "the Table?" I, personally, am waiting for a church that gets it.

  2. I figure there has got to be a third way. What if we had tax policies that encourage that most wealthy .1% to invest in the poorest 90%? Right now we tax payrolls. What the hell is that doing? It's encouraging the wealthy to employ capital ("tech") instead of labor? Why don't we have tax policies that incentivize job creation in poorer areas. That should be both a republican idea ("tax cutting") and a democrat idea ("leveling the playing field").

  3. These are great points and ones I think about a lot. There was a recent segment on NPR about Rochester, NY that highlighted a company that makes optics for the aerospace and military. They are located in Rochester because it was the former location of Kodak. Most of their employees and much of their machinery was obtained from Kodak. But where Kodak employed 60,000 people at its peak, Exelis employs 80. One thing I don't see anyone talking about is if technology continues to fuel productivity gains, what are we going to do with all these people? When Henry Ford introduces the moving assembly line assembling a flywheel, which took 1 man 20 minutes to do, was reduced to 13 minutes by having 29 men each do 1 step. But if a machine can be designed to do it, it might only require 1 man. What do to with the other 28? This is the problem facing us in the 21st century that no one seems to be talking about.

    One person I recall wrote an intriguing article about standard minimum income rather than a minimum wage or unemployment insurance. It was roundly ridiculed, but it at least the author was thinking about the problem.

  4. The electorate doesn't seem confused. It's punishing incumbents who deserve to be punished. It's Obama's remaining supporters among the Democrats who are confused. They should be asking why turnout -- even among Democrats -- was so low, instead of blaming the voters.

  5. You've just hit on my frustration with the Democrats and their complete inability to articulate a constructive solution to the structural economic issues in this country. (And if Hillary is the Democratic nominee in 2016 - I'm going back to voting Green.) Raising the minimum wage would help a lot of people, and I'm for it, but it's certainly not an entire solution.

    Which brings us to the issue of what, exactly, is a "lasting and structural fix" for the wages and productivity gap? I think part of it is that we have to stop defining the health of the economy in terms of GDP and the stock market and start defining it in terms of the well-being of workers.

    I don't think the answers will come from the politicians - particularly since most of them at the federal level are part of the 1% themselves, and entirely too invested in the status quo. Most of the policies that benefit workers came as a result of people organizing themselves and demanding change and fighting for it loudly (and not always non-violently) - most of the "job creators" fought back and fought back hard (and not always non-violently.)

    I think part of it will mean making certain industries - like farming - MORE labor intensive and not less as Tracy mentioned below, (factory farming really is horrible), and figuring out how to create manufacturing jobs here in the U.S. (which is hard - there's simply no way that American workers can compete with workers in Bangladesh on wages.)

    But politicians won't start trying to find solutions until the electorate scares them into doing so.

  6. We had a small scale of that during the Clinton administration called "Empowerment Zones", and the evidence says it worked well and increased employment in cities that needed it (see a paper by Patrick Kline). These expired, and the Obama administration favored renewing them under the name "Growth Zones", but there was not much support for it.

  7. Here's the deal. I am a public school teacher who lost my local supplement and 8 days furlough. I've gotten two days back. We still have 70 percent of our kids on free and reduced lunches and food prices are sky high.

  8. Nice trick, quoting left (Andrew Sullivan) and far left (TPM).. You should check out Sen. Mike Lee's proposals on exactly these things. The are substantive and have a much higher probability of doing something for the american family.



  9. That goes nicely in the "evidence that Clinton could work much better with the other side than Obama" file.

  10. Sucky situation, but not voting???

    Well, you're right in one sense: neither party is really worried about those who don't vote.

  11. No tricks Mark. Personally, I find the whole "left" vs. "right" labeling and rhetoric to be a bunch of BS. For example, look how I used the "far left" (TPM) in my post: To criticize the democrats! That's what you're objecting to? Using the left to critcize the policy bankrupcy of the left? Tricks...give me a break.

    Regarding Sen. Mike Lee's "plan." I looked at his Senate website to get the gist. Basically--surprise. surprise!--it's--wait for it, wait for it--tax cuts! From his website:

    Under this plan, a married couple with two children making the median
    national income of $51,000 would see a tax cut of approximately $5,000
    per year.

    Hey, I love tax cuts. I'd take $5,000. Two problems.

    First, you can't keep going to that well. You can't keep giving tax cuts forever. Especially when we're at historically low rates. So this is a band-aid, a one-time intervention.

    Which goes to the second problem. Yes, after the tax cut that median income gets bumped up by $5,000. That's helpful. I'd take that money. But the underlying dynamics of wage and income stagnation haven't been addressed. Yes, my income has been bumped up to $56,000--very helpful--but that new income will remain stagnated unless you deal with the other issues mentioned in the post, issues the Republicans (and the Democrats) have no good ideas about. Tax cuts are just kicking the can down the road. It's not a fix. It's a band-aid, candy for an election cycle.

    (All that to say nothing about how those tax cuts get paid for. That $5,000 isn't Monopoly money.)

    Like I said, no change coming.

  12. I like to naively think that there will be a trickle down from improved tech like me getting my wife's old iphone this week. It is interesting though how as labor becomes obsolete the lower classes lose their one bargaining chip to get a share of the pie. There is an idea out there called the myth of scarcity in which our world is changing from one where there wasn't enough to more then enough due to tech but even though the total production has grown immensely there is no significant change in lifestyle because the lower class more then ever exist on the largesse of the wealthy. Where we could have reduced work hours and increased vacation we instead have duel income families to make the pie bigger for a reduced share of it. But like I said it isn't all bad, at least we have netflix and smart phones :)

  13. Maybe the answer to helping American manufacturing is fighting for better minimum wages in Bangladesh, because if all labor wages rise then production location becomes more dependent on where the sales are and product quality then where the labor is cheapest.

  14. It could be people don't vote because they perceive that the game is rigged, and therefore whether they play or not is inconsequential. So telling them that it doesn't change because they don't vote they view in the same way you would if I told you that the reason your not rich is because you don't play the lottery.

  15. Fair enough, htp, fair enough.

    But I guess I have little sympathy for folks who don't vote and then complain about political outcomes. What good is talking about your situation on a blog if you can't drag your ass to the poll?

  16. Look a little closer, the bigger changes are threefold with two of them being family centric.
    1) The child tax credit would go from $1,000 to $3,500 and be refundable against payroll taxes as well. So, families who are providing the children that will pay those old age benefits for DINKs will get a real break.
    2) The EITC would be reformed to stop the shock (which I myself can attest to) of paying about 105% marginal rates as it phases out. There are also other parts of that to streamline and boost the EITC.

    Both of those focus simply on getting money to those who are "playing by the rules" but it isn't paying as it should. They go beyond simple tax cuts and they do so in a simple way without invasive government interference.

    3) The third element is what I'd simply call restoring the simple rule of law. You kill all the millions of tax laws and various regulations that benefit insiders and kill competition. The wonk way of referring to that would be "Kludgeocracy". Get the kludge out.

    That is the longer-term solution. Getting rid of the statist weight killing new endeavors.

    From my perspective that is big change. An immediate move in giving money exactly to those struggling (something that I would think even lefties could get behind, unless the real problem is that it only goes to kids and working families not creating government dependence), and a longer term effort to spur authentic economic activity and not just give-aways to special politically approved groups.

    Now I'm cynical enough to want to see it happen, but it is at least movement in the correct direction.

  17. It makes us feel better to commiserate about our misfortune :) Just like we talk about bad weather, even though it isn't likely to change it, it is fun to compare survival techniques.

  18. Spur economic activity? This is the point of the post. The economy is doing well. GDP is growing! The stock market is at record highs. Interest rates are at historic lows. Productivity is continuing to rise. There's plenty of economic activity and innovation and investment. Sluggish economic activity isn't the problem!

    Giving a middle class family a few hundred bucks a year isn't going to fix what's ailing us.

  19. Yes, I read it, the Fortune 500 is doing great. Because they have enough political sway to run k-street and get exempted from leviathan, or use leviathan to prevent new competitors. MBA-101, regulatory capture. They may have to pay the protection money, but without competitors they can raise prices and do so; or keep prices low and just pay employees less because there is no place they can go. If the law was actually simplified and applied to all equally, then Adam Smith would start working again. We went past the tipping point of the amount of the economy controlled by politics instead of the market. It has become more profitable to game the system than to make things.

  20. We agree on this. So how are you going to extract the influence of capital upon the democratic process? Especially in the wake of something like Citizens United? And the concentration of wealth in fewer and fewer hands, hands that will use wealth to consolidate political gains?

    Again, I don't see how either party, and especially not Republicans, are willing or able to implement policies that extract the influence of capital upon the democratic process. If anything, they are exacerbating the problem.

  21. From how I see it the only real hope is the GOP. The easiest way to see that is that the GOP is dependent upon the country and blue collar men for votes. When they stay home (c/r Sean Trende) as in 2012 they lose. When they vote (2010, 2014) they win. That constituency is the one stopping "comprehensive immigration" (because nothing says solving income inequality like legalizing 5M new low skill employees, c/r Mickey Kaus). Hence you get Mike Lee and libertarian "stop the cronies" like Rand Paul. The Democratic Party gets its votes from minorities and cultural issues and it gets its money from Board Rooms and Wall Street. (They raised and spent more in this last election than the GOP by far.) And they like helping to choose winners and losers politically being the party of government. They are never going to go against the money. They have no constituency in doing so.

    I'm not saying it is a done deal. The GOP is the stupid party. But if they like being in the majority, returning to "normal order" and killing all the special deals, i.e. taking the money and voting against it, is something they will do. And I think there are just enough that get it. There are just enough GOP'ers who come from regular people who might vote in their interests. Or just enough who have have ideological principles they won't cross.

  22. My point is that some voted for change and the change people voted for hasn't come to Main Street as promised. It may be on its way. Who knows. This was the first election I've not voted in in many years. I simply didn't see enough difference in what the candidates were saying to make a difference in who was elected.

  23. Both parties are beholden to capital. But which forms of capital is important. (This chart is fascinating: http://www.businessinsider.com/charts-show-the-political-bias-of-each-profession-2014-11 ). GOP capital is more narrow focused and about making real world stuff. You can pay them off with lighter regulation and many, like the Kochs(!), like to think of themselves as competitors. They are happy with a level playing field. They like to pretend they are Rearden Metals. Finance plays both sides, but tilts Dem and would never consider funding an evangelical. All of the zero sum game capital is Dem. Different level of payback required. The only party that has an electoral reason for bucking their capital is the GOP. There is a reason Douthat often talks about the GOP rejecting the "donorist perspective". When the Dems used to complain about "What's the Matter with Kansas" and voting against interest, they should be happy now. The blue collar males at least have figured it out. They vote GOP or stay home. If it is a donorist (Mitt!) they stay home. The stupid party just might decide it likes being in power instead of delivering to the donors. There is an old joke about not being much of politician if you can't take their money and vote against them. Anyway, sorry for the rant.

  24. ...and the Romans had the Circus Maximus. ;)

    It's a interesting conundrum though - retail has to figure out a way to price their products so that people can afford them with stagnant wages, and they mainly achieve this through means that keeps wages stagnant. I remember an interview several years ago in a town where they were shutting down the textile factory and laying thousands of people off. Of course the factory was being shipped overseas. They woman they were interviewing was understandably upset and lamenting what her family would do. The irony was that the interview was held in the Wal-Mart parking lot where the woman had just come from shopping.

  25. Which is more patriotic, to be a good capitalist and get the best deal or to buy local products (assuming you can even find them)? :)

  26. I'd encourage you then, the next time you feel that way, to go vote a blank ballot. It shows that you're committed to the process but that the politicians aren't listening. If more folks did that, the politicians would take notice and start trying to figure out what they're missing.

  27. As you rightly mention, this is just another shell game that does nothing to address the underlying problem. Stop paying your mortgage and you can spend more 'Woo Hoo!' until the sheriff shows up to evict you. The GOP is hell bent of bankrupting the government because their premise is the government doesn't work so it is a self-fulfilling prophecy,

    A family of 4 that has a family income of $51,000 would likely pay less than $5,000 in taxes now. Your income would not bump to $56,000, it would bump from around $46,000 after tax (including Income and payroll taxes) to $51,000. Then, like they do with EIC credit, the Right can bitch about even more people not paying taxes and use that as justification to explain why they lose elections when more than 1-in-3 people show up to vote. And they will, of course, accomplish this by going after the payroll tax, which will just further weaken social security, a programs essential for the the people they are pretending they are helping and mostly meaningless for the top of the income distribution. Payroll tax is a form of forced savings, so by reducing it you simply stop saving and add it to current spending. Nothing is actually gained.

  28. The economy is in shambles, 99% percent of us are living in an economic depression. If you're one of lucky on Wall Street or corporate boardrooms with access to all the free money flowing from the Fed things are great, for the rest of us not so good. All we see is increasing debt, healthcare skyrocketing, declining wages etc.

    I totally agree giving the middle class a few bucks in tax breaks isn't going to do anything to spur demand. Lack of demand is the problem, all the the .01% does with the tens of trillions of dollars in free Fed money is corporate stock buybacks and High Frequency Trading (trading the same stock back and forth thousands a times a minute to increase the price) and speculating in commodities to increase our food prices.

    What the middle class needs is something massive, something similar to what the government did to save the rich in 2008. To begin with the government should mail a check to every family of the 99%, something along the lines of $250,000. This could be used to pay off all kinds of debt. If that's not enough to spur demand. Send another $250,000. This will not cause any inflation because it will mostly all be used to pay off debt.

    From there we need a universal minimum income ($40K/year), universal health care, free higher education, massive infrastructure/mass transit investment and make it much easier for small businesses. After those immediate needs are met we can hire prosecutors to return the rule of law to the financial sector, then we can turn to massive estate taxes to return the political system from pro-wrestling/kayfabe spectacle.


    35 years of neo-liberalism has caused a depression for the middle class, we need a radical changes, it's going to take a long time to undue all the damage and wrong thinking.

  29. I wonder if they would report that in the returns? It would certainly show something if rather than winning with 55% of the vote a party 'wins' with 19.8%.

  30. Having done the election judge thing, my understanding is "yes."

    Usually it is something that they (parties and candidates) ignore, but if the number of folks casting blank ballots (NOT the same as "not voting") were sizable enough I think it would be a wake up call. And yes, the candidate getting more votes than his opponents would "win" an election. If not sure if runoffs would be required in races that would ordinarily have them if a candidate got < 50% of votes but more than all of his/her opponents combined.

  31. In recent history, the middle class has suffered because big business has learned how to maximize profits and reward shareholders though well-meaning government incentives, information technology and worker desperation.

    Free trade agreements have moved well-paying manufacturing jobs to countries with bottom-of-the-barrel wages. The loss of those jobs has resulted in a new generation of workers who lack the skills start-up and medium sized manufacturers need. Consequently, more manufacturing jobs are sent abroad and smaller manufacturers fail.

    Efficiencies due to information technology have allowed productivity to soar. Cell phones and Internet connections to workplace networks are causing wage earners desperate to keep their jobs to work excessive hours which donates to the company's bottom line.

    Workers are afraid to complain about long hours or low wages for fear of losing their jobs. Amazingly, more and more workers are turning away from unions because they see their union dues as something to cut to increase take-home pay. The union pendulum will swing back eventually when conditions are more extreme.

    Neither party has been able to offer ideas to solve those problems. It's particularly frightening that voters have given advantage to the GOP, a party that believes that if you give corporations advantages to increase their profits, they will do the right thing for their employees, when those profits will be shoveled off to executive and shareholders instead. The top one percent will still thrive while the rest lag far behind.

  32. If you were serious about this, Tracy, you'd quit posting here with your computer, sketch out your thoughts on paper and pencil - better still, chisel them on stones using tools you fashioned yourself from metal you mined and refined yourself with a pick, shovel, and furnace - and you'd send them directly to Dr. Beck in the hands of an adolescent courier on horseback.

    Either that, or your co-lamenting that machines are supplanting human work rests on an arbitrary threshold of how much mechanization is too much.

    Note also that "increasingly powerful and increasingly expensive technologies" almost without exception end up being "increasingly powerful and increasingly affordable technologies" in a very short time. The fact that you call yourself "at the bottom" yet are posting your thoughts on a relatively modern technology platform is prima facie evidence that...well, you aren't looking at things terribly objectively.

  33. Hi Brent,

    The unprecedented use of machines to increase production over the last two generations has inevitably led to a devaluation of human labor, because it's replaced with more productive and efficient machines--just as horses dropped in value when automobiles replaced them. Simple observation--no extrapolations...no claim to be on "the bottom"..no entailment that I'm against technology...

    I did claim to identify the basis of the structural inequality in the use of capital to invest in new technologies that replace human labor. It creates a challenge, doesn't it? Will there be jobs for cab drivers, if automated automobiles are deployed in metropolitan areas in ten years; or will the cabbies go the way of the horse a hundred years ago? That will depend on a great many things, and will come down to the circumstances in each cabby's life. But that challenge clearly, obviously, underlies the devaluation of labor. And in Detroit, where they make the cars, the devaluation of the laborers whose jobs were replaced by machines is unquestionable.

  34. Let's help spread the wealth. Help fast food workers fight for $15/hr!

    Check out - Taylor Swift and Fast Food! - Fight for $15!


  35. Let's see, the American worker is as productive as ever but underrepresented and thus underpaid. The resurrection of the power of unions is the only solution I see. Your graph in this post needs some labor union statistics added in. Unfortunately a certain political party seems to dislike unions.

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