For most of the last century, the basic bargain
at the heart of the American economy was that employers paid their
workers enough to buy what American employers were selling.
That basic bargain created a virtuous cycle of higher living standards, more jobs, and better wages.
Back in 1914, Henry Ford announced he was paying workers on his Model
T assembly line $5 a day -- three times what the typical factory
employee earned at the time. The Wall Street Journal termed his action "an economic crime."
But Ford knew it was a cunning business move. The higher wage turned
Ford's auto workers into customers who could afford to buy Model T's. In
two years Ford's profits more than doubled.
That was then. Now, Ford Motor Company is paying its new hires half what it paid new employees a few years ago.
The basic bargain is over -- not only at Ford but all over the American economy.
New data from the Commerce Department shows employee pay is now down
to the smallest share of the economy since the government began
collecting wage and salary data in 1929.
Meanwhile, corporate profits now constitute the largest share of the economy since 1929.
1929, by the way, was the year of the Great Crash that ushered in the Great Depression.
In the years leading up to the Great Crash, most employers forgot
Henry Ford's example. The wages of most American workers remained
stagnant. The gains of economic growth went mainly into corporate
profits and into the pockets of the very rich. American families
maintained their standard of living by going deeper into debt. In 1929
the debt bubble popped.
Sound familiar? It should. The same thing happened in the years leading up to the crash of 2008.
The latest data on corporate profits and wages show we haven't
learned the essential lesson of the two big economic crashes of the last
75 years: When the economy becomes too lopsided --
disproportionately benefiting corporate owners and top executives
rather than average workers -- it tips over.
In other words, we're in trouble because the basic bargain has been broken.
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Yet incredibly, some politicians think the best way to restart the
nation's job engine is to make corporations even more profitable and the
rich even richer -- reducing corporate taxes; cutting back on
regulations protecting public health, worker safety, the environment,
and small investors; and slashing taxes on the very rich.
These same politicians think average workers should have even less
money in their pockets. They don't want to extend the payroll tax cut or
unemployment benefits. And they want to make it harder for workers to