December 30, 2014
A NYT article on efforts to overcome stagnating incomes for the middle class bizarrely skipped over the most obvious and proven method: low unemployment. The problem shows up in the very first sentence, which tells readers:
“For average American families, the United States economy is like a football team that cannot move the ball, and has not been able to for 30 years.”
Actually, the football team moved the ball very well in the years from 1996 to 2001, when families at middle and bottom of the income ladder saw large wage gains. In fact, this five year period accounted for all the growth in wage income for middle class families since 1980. The problem was that the recession that began in 2001 following the collapse of the stock market bubble led to higher unemployment and took away workers bargaining power.
But there is zero reason to believe that if we again got the unemployment rate down to the levels of the late 1990s that we would not again see income growth for middle and lower income families. Bringing back the football analogy, this discussion is like bringing in a new quarterback just before half-time, who quickly leads the team to a touchdown. The coach then brings in the old quarterback in the second half. As he watches his team flounder, he is just perplexed as to what he can do to develop some offense.
We do know the answer, it’s involves bringing the economy back to full employment. That will likely require more demand, with the most obvious sources being a larger budget deficit or a smaller trade deficit. (The proven way to lower the trade deficit is a lower-valued dollar, an item found in every intro text book but almost never mentioned in policy circles.) If taboos on discussion of budget deficits and trade deficits prevent us from going the route of increased demand we can look to follow the German model and lower the unemployment rate by reducing the supply of labor. This would mean work-sharing, paid sick days and family leave, and other mechanisms that reduce the average number of hours per worker.
Anyhow, we do know how to increase income growth for the middle class, even if we’re not supposed to talk about it in polite circles.
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