Restore the Basic Bargain
Robert B. Reich
For most of the last century, the basic bargain at the heart of the American economy was that employers paid their workers enough to buy what American employers were selling.
That basic bargain created a virtuous cycle of higher living standards, more jobs and better wages.
Back in 1914,
That was then. Now,
The basic bargain is over -- not only at Ford but all over the American economy.
New data from the
In the years leading up to the Great Crash, most employers forgot
Sound familiar? It should. The same thing happened in the years leading up to the crash of 2008.
The latest data on corporate profits and wages show we haven't learned the essential lesson of the two big economic crashes of the last 75 years: When the economy becomes too lopsided -- disproportionately benefitting corporate owners and top executives rather than average workers -- it tips over.
In other words, we're in trouble because the basic bargain has been broken.
Yet incredibly, some politicians think the best way to restart the nation's job engine is to make corporations even more profitable and the rich even richer -- reducing corporate taxes; cutting back on regulations protecting public health, worker safety, the environment and small investors; and slashing taxes on the very rich.
These same politicians think average workers should have even less money in their pockets. They don't want to extend the payroll tax cut or unemployment benefits. And they want to make it harder for workers to form unions.
These politicians have reality upside down.
Corporations don't need more money. They have so much money right now they don't even know what to do with all of it. They're even buying back their own shares of stock. This is a bonanza for CEOs whose pay is tied to stock prices, and it increases the wealth of other shareholders. But it doesn't create a single new job, and it doesn't raise the wages of a single employee.
Nor do the wealthiest Americans need more money. The top 1 percent is already taking in more than 20 percent of total income -- the highest percentage since the 1920s.
American businesses, including small-business owners, have no incentive to create new jobs because consumers (whose spending accounts for about 70 percent of the American economy) aren't spending enough. Consumers' after-tax incomes dropped in the second and third quarters of the year, the first back-to-back drops since 2009.
The recent small pickup in consumer spending has come out of their savings. Obviously this can't continue, and corporations know it. Consumer savings are already at their lowest level in four years.
Get it? Corporate profits are up right now largely because pay is down and companies aren't hiring. But this is a losing game even for corporations over the long term. Without enough American consumers, their profitable days are numbered.
After all, there's a limit to how much profit they can get out of cutting American payrolls or even selling abroad. European consumers are in no mood to buy. And most Asian economies, including
We're in a vicious cycle. The only way out of it is to put more money into the pockets of average Americans. That means extending the payroll tax cut. And extending unemployment benefits.
Don't stop there. Create a WPA to get the long-term unemployed back to work. And a
Hire teachers for classrooms now overcrowded, and pay them enough to attract people who are talented as well as dedicated. Rebuild our potholed highways. Create a world-class infrastructure.
Pay for this by hiking taxes on millionaires.
A basic bargain was once at the heart of the American economy. It recognized that average workers are also consumers and that their paychecks keep the economy going.
We can't have a healthy economy until that bargain is restored.
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