It's the Earnings

Despite what some might say, the reason for the whole Occupy movement, the 2008 crash in the first place, and the persistence of the recession, all boil down to one simple factor with a lot of complex causes. For the last thirty years, American wages have stagnated. Couple stagnation with inflation, rising health care costs and college tuition, and general increases in the cost of living, and the meaningful earnings of American workers has been going steadily down for thirty years.

Simply put, most Americans have a lot less truly discretionary money than they used to. It's easy to connect that to the financial collapse of 2008. That collapse was caused by a financial market based in the trading of financial products based in sub-prime mortages, i.e. mortgages that, because of the borrowers credit rating, income, or other factors, had a high risk of not being paid off. If wages had kept pace with profits, productivity, cost of living, or even just inflation, more Americans would have had enough money to actually afford homes, and thus, not be sub-prime borrowers in the first place. This inability to afford homes, was, of course compounded by the amount of credit debt most Americans carried and carry. If wages hadn't stagnated, fewer Americans would have had to go into credit card debt in order to make ends meet. That debt, also contributes a great deal to the persistence of the recession, as paying down credit card debt, or really any debt, does not create any new economic activity because it is not new spending. And no matter what the other factors are, people can't really spend money they don't have at a rate needed to jump start a sluggish economy no matter how easy credit might be.

To put it in an almost tautological sound byte, America is in a recession because Americans don't have enough money.

It would be one thing if wage stagnation were part of a long downturn in the American economy. But over that same time period, both productivity and corporate profits went up. It would also be another thing if Americans, for whatever reason, started working less, but Americans now work more than anybody else in the world. We work more than Japan. Remember when it was kind of a joke how hard the Japanese worked?

There are a lot of different factors that caused the wage stagnation including; weakening influence of unions, globalization of labor, transition to a service economy, stagnant minimum wage, and a change in executive culture. Recent executives seem to have developed a radical short-sightedness that focuses only on this quarter's dividends and this year's executive bonus. This is in contrast to the radical, liberal, socialist, east-coast, VW driving, hippie, elitist, Henry Ford, who paid his workers fairly well, under the radical belief that if you want to sell something, people need to have enough money to buy it. The easiest way to ensure that at least some people had enough money to buy his cars was to pay his workers enough money to buy his cars.

And that speaks a little to a possible solution to the problem. This wouldn't need to be a government solution if executives paid their workers well, reflecting the growth of profitability and productivity, the increase of cost of living, or even just inflation. (And corporations now have more cash in hand than perhaps any other time in history, so the money is there for this.) Consumer spending would go up, Americans could get a handle on their debt, whether its mortgage, credit card, student loans or all three, and that would be it for the recession. Obviously not every company is in the position to do this, but those that could and do would stimulate spending in other parts of the economy, contributing to its overall health. But as we learned the last time we went through this, if a behavior is making money right now for the right people, no matter how bad that behavior might be in the long term for everybody, even the companies and shareholders in question, the private market will not correct this behavior. You'd think you wouldn't have to pass a law to tell companies that filling out their “medicine” with rat poison is bad for society and their industry but you do. You'd think you wouldn't have to tell investment brokers that it is a terrible idea to build an entire financial structure on loans that are, by definition, most likely to be defaulted on, but apparently you do. And you'd think you wouldn't have to re-teach American executives the lessons of Henry Ford, but you do.

And this is why responsibility for the 2008 crash rests not only with the investment banks. It is shared by every American corporation that depressed earnings by shipping jobs to countries with less just labor laws or only hiring people part time employees to avoid having to pay benefits or slowly reducing the benefits that help reduce cost of living or laying off workers to maximize short-term profits. The banks just provided one final I-can't-believe-anybody-would-build-a-financial-market-out-of-mortgages-likely-to-be-defaulted-on straw on the camel's back. And this is one of the reasons why the Occupy Wall Street movement is diverse and diffuse and should remain so. Wall Street is a convenient organizing metaphor, but the problem is spread throughout our entire economy.

This means it has to fall back on the government, and I still think the best way to accomplish, productively putting more money in more Americans' pockets is a big old infrastructure project. It injects capital into the consumer economy while improving our economy's ability to transact business. And it doesn't just have to be roads and bridges. Does your company use the Internet? Then it benefits from a government investment in technology and infrastructure in the 60s, 70s, and 80s. Federal investment now in the technological infrastructure, like say, a modernized electrical grid to maximize the impact of subsequent renewable energy technology, will stabilize the economy in the short term and lead to economic growth in the future.

And if we have to raise taxes on the top 1% to do it, well; as I said earlier, American wages stagnated while American profits rose, this means there had to be a surplus, and I'm pretty sure we know where it went. A modest increase in tax burden seems like a pretty reasonable thing to ask after the top 1% have spent the last thirty years hoarding the largess of everyone else's hard work.