line up and weep

What’s free market laissez-faire left us?
Six people looking for work for every job opening.

Our corps of leaders struggle with intense challenges, yet argue abstract and impotent issues as if to hide under political sophistry. When not pilfering, today’s leaders seem sloppy and generally very very poor-witted.

Of every dollar of real income growth between 1976 and 2007,
58 cents went to the top 1 per cent
. – Fault Lines, University of Chicago

Unemployed per job opening, Scott WinshipMark Thoma asserts: “I have argued for a long time that one sign that we are finally in a self-sustaining recovery will be private money coming off the sidelines and taking risks without government inducements to do so.

“So far, we aren’t seeing that to any significant degree. The president can talk all he wants about how confident we should be in the economy (perhaps at risk to his own credibility since it’s obvious we still have problems to solve), but confidence won’t build until the private sector takes the lead.

“The mistake has been that the government has not done enough to prime the economic pump so that the private sector can then take over on its own, not that it has done too much.”

Social contracts are breaking down in the US and Europe:

I think of it as the end of ‘The Deal’. What was that deal? It was the post-second-world-war settlement: in the US, the deal centered on full employment and high individual consumption. In Europe, it centered on state-provided welfare.

“Well we can no longer afford that.” But that’s simplistic and misleading. We DID afford it.

What led to the change in the deal was the staflationary 1970, which was driven both by a commodity prices (most notably the oil crisis) and labor bargaining power (workers were able to demand that wages keep pace with inflation, which when inflation got beyond a modest level, stasis became self-reinforcing).

So the new program was to reduce workers’ bargaining power, both by combating unions, and by tolerating un- and under-employment. Rising worker wages that had been seen as crucial to greater prosperity was quietly abandoned as a policy goal. But this has profound implications.

As rising income inequality demonstrates, the benefits of growth accrued substantially to those at the very top. Absent a few wastrels, people with that level of income are not going to spend as much of their income on consumption as those less well off. Thus (in very crude terms) Keynes’ problem of the paradox of thrift, that the understandable desire of households to save can result in insufficient demand, becomes even more acute when it is pretty much only the rich who are getting richer.