Something is Fundamentally Wrong by William Spriggs

August 4, 2013

Something is Fundamentally Wrong

By William Spriggs

(TriceEdneyWire.com) - President Obama continues his visits to different parts of America to discuss the economy. This is his attempt to use the Bully Pulpit of the Presidency to direct a national dialogue.

The President said, "There are no simple tricks to grow the economy. What we need is a serious, steady, long-term American strategy that reverses the long erosion of middle-class security and gives everyone a fair shot to get ahead."

On this score, the President is exactly right. Clearly, we have a huge jobs deficit, but the problems facing America run deeper. We are stuck because we lost the road map. Simply getting the engine of job growth running is not going to put us on the correct path. In fact, it will simply run us into another, deeper rut.

The current Washington consensus that everything is fine, we just need to address long run fiscal deficits misses the precarious position we are in and that we are lost. In Chattanooga, President Obama raised two points directly that underscore the direction the national discussion needs to go. One is the issue of the minimum wage. The other was the awful track record of public-sector employment that has weakened the recovery from the Great Recession. Both relate to restoring the role of government and democracy in shaping our economy.

Once again, President Obama spoke to raising the minimum wage; a topic he mentioned in his State of the Union address. As he pointed out this week, "No one who works full-time in America should have to live in poverty, I will keep making the case that we need to raise a minimum wage that in real terms is lower than it was when Ronald Reagan took office."

To put that in a different way, we are currently paying workers wages that would have been illegal in 1980. To create the middle class out of the depths of the Great Depression, it was clear the government had to rewrite the rules of the game. The government had to reset the boundaries of economic activity, especially to set the boundaries for wages. It follows absolutely that if it is legal to pay workers a wage that puts them in poverty, you will have poor people. It is neither in the power of workers, or the government, to fight poverty that the market generates.

The growth of the middle class was achieved in the post World War II era, in large part, because until 1981, the minimum wage generally tracked closely the wage that yielded an income slightly higher than the poverty level. So, anyone who landed a job, and worked hard could at least start from being on the poverty floor. Today, that is not the case. Nearly 3 million people in America work hard full-time, year-round, but remain in the cellar, not even able to reach the floor of poverty. The change in the 1980s was a change in policy priority. Instead of the government setting boundaries so the market would generate middle-class outcomes, the government became the servant of the great "Job Creator"; a mythical beast that claimed powers impossible in economics. Modern economists believe that we observe the intersection of supply and demand forces; clearly outcomes cannot be generated simply by one force. This superstition has led to the "creation" of lots of low-wage jobs, despite a workforce that has grown in education and skills.

It is time to assert a positive role of the government in the economy. Letting market power reign is not the same as letting competition reign. Boundaries do not prevent competition; they merely proscribe the competitive outcome. The wielding of market power leads to the end of competition and the start of oligopolies and monopolies; and oligopolies and monopolies do not lead to efficient outcomes. This is why anti-trust laws were developed to counterbalance the powers of a few economic actors to dictate market outcomes; instead of market forces.

And, something the President said only obliquely is an important set of rules the government put in place as well. The president said, "We saved the auto industry, and thanks to General Motors and the UAW working together to bring jobs back to America, 1,800 autoworkers in Spring Hill are on the job today in what was a once-closed plant."

The importance of the UAW to saving the auto industry is a key to understanding the shortcomings of the "Job Creator" myth. For the many workers who walked out in collective action at fast-food restaurants around America this week to demand a raise in the minimum wage, the need for labor law change is clear. Government is one counterbalance to market power, but empowering workers is another way to bring equilibrium in the market place.

The Senate finally confirmed the president's nominees to the National Labor Relations Board (NLRB) so the rights of those fast-food workers can be protected and upheld. But, the president needs to articulate a modernization of enforcement of workers' rights to get us back from being lost to found.

And, in asserting a positive role for the government in the economy, the president raised the point, "Over the past four years, more than 700,000 workers at the federal, state, and local levels of government have lost their jobs. These are cops, and firefighters, and about half of them are the people who work in our kids' schools. These are real jobs, too. It doesn't help a company like Amazon when hundreds of thousands of customers have less money to spend. If those layoffs hadn't happened-if public-sector employment grew like it did after the past two recessions-the unemployment rate would be more than a full percent lower today, at 6.5 percent. And our economy would be much better off." The key acknowledgement he made is that "cops, and firefighters" are "real jobs, too."

Public-sector jobs are the result of democratic forces-people demand a public good and government has to go out to hire people to deliver those goods. The market place runs on one dollar one vote. But, public demand is based on one person, one vote. The great fear of the rich in an unequal society is that the 99 percent will exercise their democratic voice to demand public goods-public safety, public roads and public education. Suddenly, what is produced in the country, and therefore the real priorities of the country, would reflect the democratic will of the people, and not just the dictates of the rich who hold the sway in what the market will produce. And in this economy, people want to know why we can't produce jobs that pay decent wages over an economy that produces profits for companies like Apple and GE that send their money overseas to hide their profits?

The president continues to move the nation to a discussion of what it will take to re-create the middle class in America. The initial reaction from Republicans was to continue to argue about long run fiscal stability; a smoke screen for a "stay the course" strategy of slow job growth and increasing inequality and ignoring the harm done to the middle class. If the president will stick to the conversation America's workers want to hear, he can unite us in a conversation about pulling America back together. He should not get distracted by a clamor for "bipartisanship."

He needs to unite America's working families, employed and people without jobs, young and needing work and old and seeking retirement security-not uniting phony party labels. That is his job; to heal the wounds of this downturn and get us back on a path to prosperity for all. Let the Republicans alone to fight for the lost cause.

William Spriggs serves as Chief Economist to the AFL-CIO and is a professor in, and former chair of the Department of Economics at Howard University. Bill is also former assistant secretary for the Office of Policy at the United States Department of Labor.