This artical made me think of dwot and her articals about wages. The coming depression is due to low wages.
August 07, 2008
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The Heart of the Economic Mess
By Robert B. Reich, Robert Reich's Blog. Posted August 4, 2008.
Most Americans can no longer maintain their standard of living. And the core problem isn't the housing crisis or rising oil and food prices. Excerpts from this artical. The Federal Reserve Board's "beige book" for June and July offers a clear explanation for why the economy has slowed to a crawl. It shows American consumers cutting way back on their purchases of everything from food to cars, appliances and name-brand products. As they do so, employers inevitably are cutting back on the hours they need people to work for them, thereby contributing to a downward spiral. The heart of the matter isn't the collapse in housing prices or even the frenetic rise in oil and food prices. These are contributing to the mess, but they are not creating it directly. The basic reality is this:
For most Americans, earnings have not kept up with the cost of living. This is not a new phenomenon, but it has finally caught up with the pocketbooks of average people.This underlying earnings problem has been masked for years as middle- and lower-income Americans found means to live beyond their paychecks. But they have now run out of such coping mechanisms. If you look at the earnings of nongovernment workers, especially the hourly workers who comprise 80 percent of the work force, you'll find
they are barely higher than they were in the mid-1970s, adjusted for inflation. The income of a man in his
30s is now 12 percent below that of a man his age three decades ago. Per-person productivity has grown considerably since then, but most Americans have not reaped the benefits of those productivity gains.
They've gone largely to the top. So Americans turned to a second way of spending beyond their hourly wages: They worked more hours. The typical American now works more each year than he or she did three decades ago. Americans became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese. But there's also a limit to how many hours Americans can put into work, so Americans turned to a third coping mechanism: They began to borrow. With housing prices rising briskly through the 1990s and even faster from 2002 to 2006, they turned their homes into piggy banks by refinancing home mortgages and taking out home-equity loans. But this third strategy also had a built-in limit. And now, with the bursting of the housing bubble, the piggy banks are closing. As a result, typical Americans have run out of coping mechanisms to keep up their standard of living. That means there's not enough purchasing power in the economy to buy all the goods and services it's producing. We're finally reaping the whirlwind of widening inequality and ever-more-concentrated wealth. I say IF Fortune 500 companies did the right thing and cut their pay and raised the pay of middle and low pay workers we wouldn't have a depression just a recession. I wish they would but they won't so depression it is.
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