A fine kettle of fish.

Wage increases haven’t kept pace with inflation for at least a decade. Generally, American families earn less than they did in 1999. A host of factors lie behind this depressing trend. There is intensifying competition from overseas (globalization); there is the difficulty of workers adapting to technological changes that wipe out lower skill/lower wage jobs while creating higher skill/higher wage jobs; and there is a government that is managing the past more than helping create the future. Still, there are a couple of factors that capture the attention.

First, America has been suffering from slow economic growth for quite a while. Why have we suffered slow growth? One answer is that high energy costs exert a drag on the economy. Beginning with the oil shocks of the 1970s, energy costs rose until the 1990s. They dropped for most of that decade, but have returned to the post-1970s “normal” in this century. Energy costs work like a regressive tax: everybody drives, so everybody pays the same gas tax; high energy costs for employers drive them to hold down other costs, like wages, or to pass them on to consumers. Another answer is that American workers used to have an enormous education advantage over most foreign workers. Now other countries have moved forward, while Americans have remained stuck in neutral. This affects productivity in a competitive economy.

Second, what growth that has occurred has flowed toward those already at the top of the pyramid. Health care costs reduce real incomes. Either employers resist wage increases in order to provide health insurance or employees without work-provided health insurance have to pay their own costs. The long rise in health-care costs cut into the rise in pay for most people. It took a proportionately smaller share from the incomes of the well-off. They plowed the difference back into investments.

Are there any grounds for even a modest optimism? Yes. First, “fracking” has greatly increased the supply of cheaper energy in America. Second, the incessant talk about the importance of education for getting a decent job has led to an increase in the number of high-school and college graduates. In 2000, 29.1 percent of 25 to 29 year olds had a college BA; in 2008, 30.8 percent did; and in 2013, 33.6 percent did. Third, for reasons that are much debated, health-care costs have stopped rising for the last few years. This should allow pay to rise as well.

None of this means that we’re home free. The way forward is shrouded in fog. Short-term results haven’t been very satisfying. American voters clang back and forth between “Hope” and the “Tea Party.” The partisan “grid-lock” in Washington may be less of a cause of our troubles than a symptom of those troubles.[1]

This analysis raises a couple of questions.

First, how do we improve the educational preparation of American workers? Shove 50 percent or more of Americans through college? Create a trades-oriented alternative to college?

Second, how do we get health-care costs down? Western Europe and Japan spend two-thirds the share of GDP on health-care as does the US and get better results, so it can be done.

Third, where do we stand on the cheap energy versus the environment issue? Global warming argues for alternatives to burning carbon; jobs and economic growth argue for it.

Fourth, what is a government supposed to do in a highly complex society and economy? After the “London whale” and the Chrysler recalls, the “regulatory state” has a black eye. That’s hardly a reason to believe in the pure rationality of the market economy

[1] David Leonhardt, “The Great Wage Slowdown Of the 21st Century,” NYT, 7 October 2014.

 

 

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