Tuesday, February 24, 2009

Fiscal Responsibility

So they got together at the White House yesterday to go over the concept of Fiscal Responsibility and Entitlement Reform. Everyone had a grand time and Republicans got to bloviate the way they do about how Democrats are Spending Our Children's Future!!!, which is always good for a teevee soundbite or two.

Digby and Jane have been keening and rending their garments about how this whole thing is all about cutting Social Security, which doesn't have any kind of fiscal problem for decades, if then, while the Boy's Club, including Josh Marshall who did yeoman work to prevent the Bush Regime from fucking with Social Security, have either been silent or have been telling the Girls to pipe down, nothing is going to happen to Social Security. It's about reforming Medicare and Medicaid.

Only Helen Thomas broke the silence in the White House Press Room when she said, "Why are you messing with Social Security now?" And Gibbs, the White House spokesman, was tongue tied. Could not even issue a denial-denial.

We are so screwed, as they say.

See the chart up top? It's been making the rounds for some time now, and it shows how after World War Two, the Big One, wages and productivity tracked one another pretty well until about 1978. It was during that period that the Great American Middle Class was established on the premise that workers who were paid enough to make a decent living would in turn boost economic well-being for all. And so it was.

Then around 1978, wages and productivity diverged sharply, the gains from increasing productivity suddenly no longer reflected in paychecks. You will note that the wages graph is essentially flat after about 1978, with some periods of decline, especially during the Reagan/Bush years, while productivity gains continue to rise.

American workers were not being rewarded at all for their productivity increases, yet productivity continued to rise. This would ordinarily indicate that Americans were facing a reduction in their standard of living, but in fact, that isn't what happened, at least for most households. Instead, they mostly maintained their standard of living or even improved it during this time of flat or declining real wages.

They did so by putting more and more people into the workforce. The two income household is now standard, whereas during the Post-War period it was a rarity. One income, during the period that wages and productivity gains were tracking fairly well, was generally sufficient for a household's decent standard of living.

It's almost impossible now.

And now that we are deep into an economic recession that looks fair to become a global depression, two income households are becoming less and less feasible as employers shed workers by the millions.

Maintaining a decent standard of working- and middle-class living is becoming more and more difficult.

And yet the rich are still swimming in more money than they know what to do with.

It happened because all the economic benefit of the productivity gains of the last 30 years have gone to the upper 2% or 3% of the wealthy. Everyone else has been taking it in the shorts. Or going very deeply into debt (a problem I have addressed in other posts.)

Most have never grumbled, never complained, but now that it's becoming harder and harder for workers to find work of any kind, and it is more and more difficult for workers to maintain -- let alone improve -- their standard of living in any way, grumbling is starting.

And the Rich, for their part, see a Disaster Capitalist way to improve their own economic standing at the expense of everyone else, how drôle, by stealing Social Security funds outright, and by restricting or reducing access to entitlements like Medicare and Medicaid. In Crisis there is Opportunity.

The fact that workers allowed the situation to deteriorate this far is telling. The union movement ground to a halt and reversed course, workers didn't demand better pay for increased productivity, and too many became content to use debt to finance what their incomes didn't allow them to pay for right away. So long as the illusion could be maintained that they weren't really being robbed, workers were happy enough most of the time.

But now that the veils are falling away, workers are feeling put upon. The fact that reductions to Social Security and Medicare/Medicaid are On The Table for discussion and potential action, while there is no talk at all of redressing the historical imbalance of wages vs productivity gains is illuminating.

There is an active generational theft going on, but it is not theft by the boomers from their offspring, far from it. It is theft by the rich from the present and from the future of everyone and for many generations to come.

Rather than discussing cutting Social Security and other benefits at a time like this, the discussion should be focused on increasing benefits substantially, doubling SS payments for example, and extending Medicare-type coverage to everyone.

This would start the process of recovering the productivity gains that have been stolen from workers during the last 30 years.

The economy would not necessarily "recover" -- which is to say, go into another unsustainable bubble phase -- but would start to settle down and stabilize. There would still be a problem of excess workers which could be partially addressed by lowering the retirement age to 55, and increasing wages for workers.

Two things are called for: confiscatory taxation for the rich, significantly increased wages and benefits for workers.

And an end to boom-and-bust bubble economies.

Americans would be consciously reducing the workforce to reflect and respond to a changed economic reality; they would be ensuring that the generational theft of productivity gains we see reflected in the chart above was recompensed by increasing Social Security payments and extending basic medical care benefits to all Americans. They would ensure economic stability over the long term by increasing wages immediately and maintaining wage levels in the future that track with overall productivity gains.

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