Tuesday, December 23, 2008

Mike Whitney thinks we need higher wages


More Pay is the Only Way


Wages, wages, wages. It all gets down to wages.

A strong, resilient economy, that can withstand the periodic buffeting of cyclical downturns, must be built on a rock-solid foundation of wages that keep pace with production. If wages stagnate, as they have for the last 30 years, the only way a consumer-driven economy can grow is through the expansion of personal debt, which isn’t so hot in the long run.

Consider this: the US economy is 72 per cent consumer spending. That means the Gross Domestic Product (GDP) cannot grow if salaries don't keep up with the price of living. Low Income Families (LOF)--that is, any couple making less than $80,000--represent 50 per cent of all consumer spending. These LOF's spend everything they earn just to maintain their present standard of living. So, how can these families help to grow the economy if they're already spending every last farthing they earn?

They can't! Which is why wages have to go up, up, up. The cost to short-term profits is small potatoes compared to the turmoil created by a deep recession, which is what the world is facing right now due to misguided economic policies. The present crisis could have been averted if there was a better balance between management and labor. But the unions are weak and have little political power, so salaries have languished while Wall Street has turned the government into a revolving door for industry reps. and corporate stooges who apply their anti-labor doctrine with ruthless zeal. As a result, real wealth has been replaced by chopped up bits of mortgage paper, stitched together by Ivy League MBAs, and sold to investors as priceless gemstones.

This is the system that Bernanke seeks to resurrect with his multi-trillion dollar transfusion; a system that shifts a larger and larger amount of the nation's wealth to a smaller and smaller group of elites.

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