Add this Page to Facebook!   Submit to Twitter   Submit to Reddit   Submit to Stumble Upon   Pin It!   Fark It!   Tell A Friend  
Printer Friendly Page Save As Favorite Save As Favorite View Article Stats
10 comments

OpEdNews Op Eds

The Truth About the American Economy

By (about the author)     Permalink       (Page 1 of 3 pages)
Related Topic(s): ; ; ; ; , Add Tags Add to My Group(s)

Must Read 8   Well Said 6   Valuable 5  
View Ratings | Rate It

Headlined to H2 6/1/11

Become a Fan
  (101 fans)

opednews.com

The U.S. economy continues to stagnate. It's growing at the rate of 1.8 percent, which is barely growing at all. Consumer spending is down. Home prices are down. Jobs and wages are going nowhere.

It's vital that we understand the truth about the American economy.

How did we go from the Great Depression to 30 years of Great Prosperity? And from there, to 30 years of stagnant incomes and widening inequality, culminating in the Great Recession? And from the Great Recession into such an anemic recovery?

The Great Prosperity

During three decades from 1947 to 1977, the nation implemented what might be called a basic bargain with American workers. Employers paid them enough to buy what they produced. Mass production and mass consumption proved perfect complements. Almost everyone who wanted a job could find one with good wages, or at least wages that were trending upward.

During these three decades everyone's wages grew -- not just those at or near the top.



Government enforced the basic bargain in several ways. It used Keynesian policy to achieve nearly full employment. It gave ordinary workers more bargaining power. It provided social insurance. And it expanded public investment. Consequently, the portion of total income that went to the middle class grew while the portion going to the top declined. But this was no zero-sum game. As the economy grew almost everyone came out ahead, including those at the top.

The pay of workers in the bottom fifth grew 116 percent over these years -- faster than the pay of those in the top fifth (which rose 99 percent), and in the top 5 percent (86 percent).

Productivity also grew quickly. Labor productivity -- average output per hour worked -- doubled. So did median incomes. Expressed in 2007 dollars, the typical family's income rose from about $25,000 to $55,000. The basic bargain was cinched.

The middle class had the means to buy, and their buying created new jobs. As the economy grew, the national debt shrank as a percentage of it.

The Great Prosperity also marked the culmination of a reorganization of work that had begun during the Depression. Employers were required by law to provide extra pay -- time-and-a-half -- for work stretching beyond 40 hours a week. This created an incentive for employers to hire additional workers when demand picked up. Employers also were required to pay a minimum wage, which improved the pay of workers near the bottom as demand picked up.

When workers were laid off, usually during an economic downturn, government provided them with unemployment benefits, usually lasting until the economy recovered and they were rehired. Not only did this tide families over but it kept them buying goods and services -- an "automatic stabilizer" for the economy in downturns.

Perhaps most significantly, government increased the bargaining leverage of ordinary workers. They were guaranteed the right to join labor unions, with which employers had to bargain in good faith. By the mid-1950s more than a third of all America workers in the private sector were unionized. And the unions demanded and received a fair slice of the American pie. Non-unionized companies, fearing their workers would otherwise want a union, offered similar deals.

Americans also enjoyed economic security against the risks of economic life -- not only unemployment benefits but also, through Social Security, insurance against disability, loss of a major breadwinner, workplace injury and inability to save enough for retirement. In 1965 came health insurance for the elderly and the poor (Medicare and Medicaid). Economic security proved the handmaiden of prosperity. In requiring Americans to share the costs of adversity it enabled them to share the benefits of peace of mind. And by offering peace of mind, it freed them to consume the fruits of their labors.

The government sponsored the dreams of American families to own their own home by providing low-cost mortgages and interest deductions on mortgage payments. In many sections of the country, government subsidized electricity and water to make such homes habitable. And it built the roads and freeways that connected the homes with major commercial centers.

Government also widened access to higher education. The GI Bill paid college costs for those who returned from war. The expansion of public universities made higher education affordable to the American middle class.

Next Page  1  |  2  |  3

 

http://robertreich.org/

Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.
Add this Page to Facebook!   Submit to Twitter   Submit to Reddit   Submit to Stumble Upon   Pin It!   Fark It!   Tell A Friend
The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Republican's Big Lies About Jobs (And Why Obama Must Repudiate Them)

Paul Ryan Still Doesn't Get It

What Mitt Romney Really Represents

The Minimum Wage, Guns, Healthcare, and the Meaning of a Decent Society

Why the Right-Wing Bullies Will Hold The Nation Hostage Again and Again

The Gas Wars

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
6 people are discussing this page, with 10 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)

Well, to answer Reich's questions, we got here by ... by Jack Lohman on Thursday, Jun 2, 2011 at 11:54:41 AM
The transformation from the citizen to consumer re... by Mark Sashine on Thursday, Jun 2, 2011 at 12:27:14 PM
Keynesian, and the opposite is Friedman, as in Mil... by Debbie S on Friday, Jun 3, 2011 at 12:49:17 AM
I graduated from Rutgers (Camden not New Brunswick... by Susan O'Connell on Saturday, Jun 4, 2011 at 8:58:40 AM
We use to be a socio-centric society -- a society ... by Peter Wedlund on Friday, Jun 3, 2011 at 11:43:25 AM
the introduction of worker robot in fields such as... by nativenezperce on Friday, Jun 3, 2011 at 1:31:34 PM
I agree with you a 100%. Isn't it a shame.Where is... by Debbie S on Friday, Jun 3, 2011 at 2:01:01 PM
with no exception all of them should have to take ... by nativenezperce on Friday, Jun 3, 2011 at 6:15:15 PM
But they never tell on each other, and they always... by Debbie S on Friday, Jun 3, 2011 at 11:46:03 PM
but what can we do is the question we must ask our... by nativenezperce on Saturday, Jun 4, 2011 at 3:51:11 PM