Wednesday, February 18, 2009

Structural Barriers

The structural barriers the nation faces to economic recovery are massive and just beginning to be realized. First among these problems is that we don't actually make anything. We are such a consumer economy that unless people are buying at ever greater rates, the economy collapses, as is happening now.

Via Pat Garofalo, here is Robert Reich:

One big reason we are in the crisis we are in, apart from the meltdown from financial markets, is that consumers have run out of money. Consumer spending accounts for about 70% of this economy, and after the housing bubble burst, consumers were back to where they were before the housing bubble, which was not a very happy place. […] The bursting of the housing bubble really cut of the last coping mechanism that many consumers had, and that was going into debt. If they can’t borrow any more and have to rely on their sinking wages, the entire economy is in trouble, because there’s just simply not enough demand out there.

Precisely. How do we get out of this situation? Garofalo suggests unionization. There's no question that's a big step. But companies have been leaving the U.S. to get away from unions for 40 years now. How do you stop that?

I think there are several good ideas, all of which would be a pretty radical shift away from current economic policies.

First, you limit company profits. As Reich points out,

If American workers were rewarded for 100 percent of their increases in labor productivity between 1980 and 2008 — as they were during the middle part of the 20th century — average wages would be $28.53 per hour — 42.7 percent higher than the average real wage in 2008.

This money has gone to the shareholders of the companies. While everyone recognizes the need of companies to make some sort of profit, the sheer greed that has dominated the US at least since Reagan must stop. Companies have to be forced, by government law, to work for their employees as well as shareholders.

Second, the federal government has to repeal the Taft-Hartley Act of 1947, pass the Employee Free Choice Act, and make it easier for people to unionize. Ultimately, there's not that many more jobs that can be outsourced. If we unionize many of the jobs we have, we can add a tremendous amount of money into the economy.

Third, the government must pass regulations limiting how companies can treat workers and nature overseas. Companies leave because there are incentives for them doing so. Mexicans and Cambodians and Guatemalans need jobs too. But they need living wages. And they need safe environments. So force companies to treat those workers with dignity and nature with respect. Figure out what a living wage is in Honduras. Then pay those workers that wage. At least a minimum wage equivalent to that in the United States. Whatever $7 an hour equals in Honduras, that's the minimum wage for those workers too. This isn't protectionism, but it does give companies some incentive to stay in the U.S. Workers making more, whether in Honduras or Michigan, add money to the economy though consumption. They are going to buy US goods.

In any case, an economy based entirely on consumption is no longer tenable. If people aren't consuming, the economy collapses. Either we have to find ways to move more money to people so that they can continue to consume or we have to find other structures on which to base our economy. One of the great problems that led to the Great Depression was overstocked goods. Companies produced huge amounts of consumer goods. But because of overproduction, consumer debt, and a general economic downturn, people stopped buying those goods. That led to huge stocks and no reason to produce more. This led to unemployment which led to even less consumption. It took 12 years to get through this cycle. Here we are again in a very similar situation. We rely almost entirely on consumers for our economic machine and they don't have any money to consume because we've funded this on debt for the last 15 years. So no one buys anything and we have huge stocks of goods and rising unemployment all over again.

I am very pessimistic about this.