The Wageless Recovery
Robert B. Reich
The most significant economic news from the first quarter of 2011 is the decline in real wages. That's unusual in a recovery, to say the least. But it's easily explained this time around. In order to keep the jobs they have, millions of Americans are accepting shrinking paychecks. If they've been fired, the only way they can land a new job is to accept even smaller ones.
The wage squeeze is putting most households in a double bind. Before the recession, they'd been able to pay the bills because they had two paychecks. Now they're likely to have one-and-a half, or just one, and it's shrinking.
Add to this the continuing decline in the value of the biggest asset most people own -- their homes -- and what do you get? Consumers who won't and can't buy enough to keep the economy going. That spells recession.
Consumer spending is slowing. In the first quarter of this year it grew at a tepid annual rate of 2.7 percent -- down from 4 percent during the last quarter of 2010. Less spending means slower growth. The economy grew only 1.8 percent from January through March. A snail could do better.
Why doesn't the Street get it? For one thing, lenders always worry more about inflation than borrowers do -- and, in general, the wealthier members of a society tend to lend their money to people who are poorer than they are.
First are price upswings in food and energy. The Street doesn't seem to understand that when most peoples' wages are flat or dropping, additional dollars they spend on groceries and at the gas pump mean fewer dollars they have left to spend in the rest of the economy. Rather than cause inflation, this is likely to lead to more job losses.
The Street is also worried that the Fed's easy money policies are pushing the dollar down and thereby fueling inflation -- as everything we buy abroad becomes more expensive. But if wages are stuck in the mud and everything we buy abroad costs more, Americans have even fewer dollars to spend. This also spells recession, not inflation.
Finally, the Street worries that if Democrats and Republicans fail to agree to a plan to cut the budget deficit, the credit-worthiness of
The Street has it backwards. Over the long term, the budget deficit does have to be tackled. But not now. When job growth remains tepid, when wages are dropping, and when the value of most households' major asset is declining, government has to step in to maintain overall demand.
This is the worst possible time to cut public spending or reduce the money supply.
The biggest irony is that the Street is doing wonderfully well right now, in contrast to most Americans. Corporate profits for the first quarter of the year are way up. That's largely because corporate payrolls are down.
Payrolls are down because big companies have been shifting much of their work abroad, where business is booming.
Corporations are simultaneously finding ways to cut the pay of their remaining U.S. workers -- not just threatening job losses if they don't agree to the cuts, but also automating the work or sending it to non-union states.
America's jobless recovery is becoming a wageless recovery. That puts the odds of another recession greater than the risk of inflation.
- The Wageless Recovery
- 9 Things We Learned From the Fed's First Press Conference
- National Debt Crisis Is an Existential Threat
- Standard and Poors Forecast Ammunition in Debt Ceiling Debate
- United States Budget: Money Worries
- China No. 1 in Five Years? Not so Soon
- 5 Economies Worse Off Than the United States
- Beware the Middle Ground of the Great Budget Debate
- What Standard & Poor's U.S. Outlook Downgrade Means
- Medicare Isn't the Problem, It's the Solution
- 5 Numbers That Could Rattle the Recovery
- Why the World Caught a Cold When the U.S. Housing Market Sneezed
- Why We Must Raise Taxes on the Rich
- Reaganomics? Meet 'Ryan-omics'
- The Frightening Truth About the Economy
- 7 Problems That Could Derail the Global Economic Recovery
- How the National Debt Affects You
- March Jobs Report Brings Good News -- Finally
- Spreading Wealth the Right Way
- 3 Reasons the U.S. Economy Remains in a Coma
- The Biggest Lies About Jobs
- Why Higher Unemployment Might Not Be a Bad Thing
- Not Raising the Debt Ceiling Would Worsen the Fiscal Situation
- We Can't Be Serious About the Debt Ceiling Until We Fix Spending
- It's BACK! The Return of Stagflation
- Federal Budget: Why Triangulation Won't Work
- Quitting Fear Inc
- Republican Obsession with Spending Cuts will Kill Jobs
- What Happens After Quantative Easing 2 Ends?
- What You Really Pay for at the Pump
- Brighter Job Outlook for Class of 2011
- Jobs Report Shows Growth, But Nothing to Shout About
- The Real News on Jobs
- The Democrats' Lame Response to the Republican Shakedown
- The Slow Decline of North America
- 'So Be It' Economics
- St. Louis Mayor Discusses Economy, Education, and Future of Cities
- The Incredible Shrinking Budget Debate
- The Wages of Infamy
- A G-Zero World: New Economic Club Will Produce Conflict Not Cooperation
- The Post-Washington Consensus
- Currency Wars: Then and Now
- Currencies Are Not the Problem
- The Great Jobs Recession Goes On
- America's Corporate Recovery Is More Fragile Than You Think
- Impending Debate Over Spending Cuts Has Nothing to Do With Reviving Economy
- Pruning Farm Subsidies
- The Wealth Gap Around the World
Available at Amazon.com:
The Wageless Recovery | Politics
Copyright 2011, ROBERT REICH; DISTRIBUTED BY TRIBUNE MEDIA SERVICES, INC.