Lambert here: Campaign-driven happy talk about the US Census income figures has been debunked remarkably fast. Here Richard D. Wolff does a thorough demolition.
Richard D. Wolff is a Professor of Economics Emeritus at the University of Massachusetts, Amherst, and currently a Visiting Professor of the Graduate Program in International Affairs at the New School University in New York. He is the author of many books, including Democracy at Work: A Cure or Capitalism, and Imagine: Living in a Socialist USA. Originally published at The Real News Network.
DHARNA NOOR, TRNN: Welcome to the Real News Network. I’m Dharna Noor.
New statistics from the U.S. Census Bureau has raised hopes that the economy is finally recovering from the 2008 crash. The figures released on Tuesday show that the US median household income has gone up by 5.2% between 2014 and 2015, putting it at $56,516. They also showed a 1.2% decrease in the official poverty rate. These figures are being hailed as a victory for the American middle class but are average Americans really benefiting?
Joining us from New York City to discuss this is Richard D. Wolff. Richard is a Professor of Economics Emeritus at the University of Massachusetts Amherst and currently a visiting professor of the graduate program in international affairs at the New School University in New York. His latest book is Capitalism’s Crisis Deepens. Thanks for joining us today, Rick.
RICHARD WOLFF: Thank you for inviting me.
NOOR: Now Rick, some commentators like the New York Times’ Neil Irwin are saying that these new figures mark the first time in years that the U.S. economic expansion has helped the middle class rather than just the super-rich, and you, too, have pointed out in recent years that economic growth has really only been benefiting the 1%. Does this new Census Bureau report mark a shift away from that trend?
WOLFF: Absolutely not. Let’s remember, in order to understand what happens, say, to the middle class, or to any large group of people, your span of attention has to be more than one year. Things bounce around in a capitalistic economy because of its instabilities, because of the contradictions that are besetting it always. So a few months, a year or two, never explain anything. You have to have a longer vision.
So yes, it’s perfectly reasonable to say and to celebrate that over the last year things have gotten better. But the reality is that it’s remarkable because over the last 20 years, they’ve gotten steadily worse. So, for example, the $56,000-plus median household income that we celebrate today is lower than what the median income of a household was back in 2007, the last year before the crash hit. And it’s even lower further behind what it was 10 years earlier in 1997. Which means that over the last 20 years while the output of the American economy has grown very much, while the productivity per worker hour has grown very much, the median household income, an average kind of number telling you how people are doing, has been declining.
In other words, not only have the working people, the vast majority, not participated in their own growing productivity in the growth of wealth, but they’ve declined. And that explains why the gap between rich and poor has gotten so much worse. So to forget about all that, to put it in the background and look at this one-year number is a bizarre and not too very praiseworthy effort to focus on a shred of positivity in a long story that points always in the other direction.
NOOR: Right. And for a bit more context, we know that the labor force participation rate is at a roughly 40-year low. Worker productivity, as you said, is at a general all time high. Wage growth has been in an overall decline since late 1970s. So are we just seeing a growth in median income that’s just sort of a result of the regular bumps of capitalism’s ups and downs? Or is there something else going on here. Is there something going on here? What’s accounting for this rise in the median household income?
WOLFF: Well, I think you have a number of factors. We did over the last year see an increase in employment. You’re right that the stunning reality isn’t really so much that as it is the vast, the millions of Americans who’ve dropped out of the labor force, because they’re so depressed about their opportunities there and their prospects. But if you put together a low rate of inflation and a little bit of pressure on money, wages to go up. Then you can have a good year.
I would remind everyone that this last Friday’s statistics from the Bureau of Labor Statistics about real wages shows that over the last month had gone down again. Again a month doesn’t prove anything but it sure suggests that the very terrible stagnation of wages in America, which explains why we’re at a 20 year low in terms of the median household income, that is not going away anytime soon. And even with rising employment, the kinds of jobs people are getting means that the real wages are actually going down of the American people.
NOOR: And it’s worth noting that the actual growth in the median income has not affected all populations equally. Rural areas in the industrial rust belt in Appalachia, for instance, haven’t really experienced the same rate of growth as major metropolitan areas in their suburbs. Why is this? What accounts for this disparity?
WOLFF: Well, I think you’d see a number of disparities. You’d see the rural urban disparity. You obviously see the whites versus African American and Hispanic disparity. But I think the biggest one to focus on is the fact that these average numbers and these median numbers don’t foreground for us the fact that if you took away the top 5% or 10% of wage earners, salary earners, or anything else, then you would quickly see how deteriorated are the situations from most other people.
Let me give you one example. Most of the jobs lost in the depressed, almost now, decade–2007 the crash really began, and we’re getting close to 2017. So we’re really looking at a lost decade. During which the number of jobs lost is enormous. But even if you look at the jobs recovered, over and over again you see that a job that was secure, a job that had good benefits and a job at a high wage gave way for the same person to have to go back to work at job with less security, less benefits, and lower wages. That’s what’s really fueling on the left the support for Bernie Sanders, on the right the support for Trump, as symbols of wanting to get away from a status quo that is for the massive people very bad news one year after the next.
NOOR: Now, this new Harvard Business School report says that the growth of the U.S. economy has slowed by the failure of the Obama administration and the Republican-led Congress to work together to improve things like healthcare and education policy, tax laws, business regulation. Do you see any truth to this? With the presidential elections quickly approaching, as you said, how should we remember Obama’s 8 years of presidency with regard to economic growth?
WOLFF: Let me start by commenting on the Harvard Business School report. You know capitalism has been the dominant system of the world economy increasingly across the last 300 years. Started in England, spread to Europe, and is now global. That system is extraordinarily unstable. It has an economic downturn every 3-7 years. Every 20-30 it’s a really bad one. Then if you look at the 1930s or the one we’re still in that crashed in 2008, you can see that instability is sometimes catastrophic in terms of its global impact. Therefore, it has always led people to confront the problem, maybe the system we have, with such instability, and put aside the question of the inequality that it breeds, maybe the system is the problem. This frightens a lot of folks. They don’t want to go in that direction, let alone pursue it.
So they look for alternative explanations. One of the most durable, one of the oldest, is the notion there’s nothing wrong with this system, it’s just the government that’s the problem. So you have the libertarians who literally blame everything they don’t like on the government. Then you have partisans. For them it’s the Republican or the Democrats. Then you have the Harvard Business Review and the Harvard Business School who like to make it a more balanced argument, so it isn’t the Republicans or the Democrats, it’s both of them in gridlock. If only, if only the government were better.
My response is: stop looking outside of a dysfunctional system and finally be honest enough. The Cold War is behind us. There is no Soviet Union you have to worry about. Why don’t you finally face up to the criticism of capitalism as a system which is as old as capitalism itself, and maybe think about whether there are structural dimensions here that are the problem of our economy, and that they shed a lot of light on why the government is gridlocked or why the government behaves the way it does.
NOOR: So do we have any reason to believe there’s enough stability in the financial system now to ensure that another crash won’t wreck the economy and wipe out millions of jobs, and destroy household wealth again?
WOLFF: Well, to tell you the truth–and here I’ll take off my hat as a professional economist and I’ll just be an American citizen. If after the crash of 1930s, which was the worst so far, we believed as a nation that we had come up with a solution to avoid it happening again, which indeed every president kind of promised us, starting with Franklin Roosevelt. If we believed it then it’s shame on us. If we kept believing it, after the next crisis happened and there were 11 economic downturns between the end of the Great Depression in 1941 and the beginning of the one we’re in in 2008, then it’s really shame on us. And if we believe that now having been told that the monetary system is under control and that the Federal Reserve will manage things, then it’s beyond shame on us. Then it’s beginning to be a question of whether we are blind to what we’re seeing.
So the answer is no. We don’t have the mechanisms to control the capitalism’s instability. Capitalist people, people who like capitalism, have been trying to avoid economic downturns for 300 years. They were very smart people. They meant to solve that problem. They haven’t been able to. That’s why we now see 8 years after the latest one that wasn’t supposed to happen, that we can’t get monetary policy to solve the problem. We’re now having negative interest rates. We haven’t seen that most of the history of the last 300 years. Things are desperate to hold on to an economy because in part we won’t have a national debate about whether capitalism is a system whose internal dysfunctionality maybe means we’ve come to the point where we ought to talk about alternative systems, because it’s urgent.
NOOR: Well, Rick, thanks so much for joining us to pick apart some of these new statistics, and we hope to talk to you again soon to talk more about some of these solutions that you just mentioned.
WOLFF: My pleasure, and I’d love to talk about those alternatives and why we ought to pay attention to them.
NOOR: And thank you for joining us on the Real News Network.
The denigration of Gareth Jones by Walter Duranty in The New York Times, Friday March 31st 1933.
RUSSIANS HUNGRY, BUT NOT STARVING
Deaths From Diseases Due to Malnutrition High, Yet the Soviet is Entrenched
LARGER CITIES HAVE FOOD
Ukraine, North Caucasus and Lower Volga Regions Suffer From Shortages.
KREMLIN’S ‘DOOM’ DENIED
Russian and Foreign Observers In Country See No Ground for Predications of Disaster
By WALTER DURANTY
Special Cable to THE NEW YORK TIMES
MOSCOW, March 30—In the middle of the diplomatic duel between Great Britain and the Soviet Union over the accused British engineers there appears from a British source a big scare story in the American press about famine in the Soviet Union, with “thousands already dead and millions menaced by death and starvation.”
Its author is Gareth Jones, who is a former secretary to David Lloyd George and who recently spent three weeks in the Soviet Union and reached the conclusion that the country was “on the verge of a terrific smash,” as he told the writer.
Mr. Jones is a man of a keen and active mind, and he has taken the trouble to learn Russian, which he speaks with considerable fluency, but the writer thought Mr. Jones’s judgment was somewhat hasty and asked him on what it was based. It appeared that he had made a forty-mile walk through villages in the neighborhood of Kharkov and had found conditions sad.
I suggested that that was a rather inadequate cross-section of a big country but nothing could shake his conviction of impending doom.
Predictions of Doom Frequent.
The number of times foreigners, especially Britons, have shaken rueful heads as they composed the Soviet Union’s epitaph can scarcely be computed, and in point of fact it has done incalculable harm since the day when William C. Bullitt’s able and honest account of the situation was shelved and negatived during the Versailles Peace Conference by reports that Admiral Kolchak, White Russian leader, had taken Kazan – which he never did – and that the Soviet power was “one the verge of an abyss.”
Admiral Kolchak faded. Then General Denikin took Orel and the Soviet Government was on the verge of an abyss again, and General Yudenich “took” Petrograd. But where are Generals Denikin and Yudenich now?
A couple of years ago another British “eyewitness” reported a mutiny in the Moscow garrison and “rows of corpses neatly piled in Theatre Square,” and only this week a British news agency revealed a revolt of the Soviet Fifty-fifth Regiment at Duria, on the Manchurian border. All bunk, of course.
This is not to mention a more regrettable incident of three years ago when an American correspondent discovered half of Ukraine flaming with rebellion and “proved” it by authentic documents eagerly proffered by Rumanians, which documents on examination appeared to relate to events of eight or ten years earlier.
Saw No One Dying
But to return to Mr. Jones. He told me there was virtually no bread in the villages he had visited and that the adults were haggard, guant and discouraged, but that he had seen no dead or dying animals or human beings.
I believed him because I knew it to be correct not only of some parts of the Ukraine but of sections of the North Caucasus and lower Volga regions and, for that matter, Kazakstan, where the attempt to change the stock-raising nomads of the type and the period of Abraham and Isaac into 1933 collective grain farmers has produced the most deplorable results.
It is all too true that the novelty and mismanagement of collective farming, plus the quite efficient conspiracy of Feodor M. Konar and his associates in agricultural commissariats, have made a mess of Soviet food production. [Konar was executed for sabotage.]
But—to put it brutally—you can’t make an omelette without breaking eggs, and the Bolshevist leaders are just as indifferent to the casualties that may be involved in their drive toward socializaton as any General during the World War who ordered a costly attack in order to show his superiors that he and his division possessed the proper soldierly spirit. In fact, the Bolsheviki are more indifferent because they are animated by fanatical conviction.
Since I talked to Mr. Jones I have made exhaustive inquiries about this alleged famine situation. I have inquired in Soviet commissariats and in foreign embassies with their network of consuls, and I have tabulated information from Britons working as specialists and from my personal connections, Russian and foreign.
Disease Mortality Is High
All of this seems to me to be more trustworthy information than I could get by a brief trip through any one area. The Soviet Union is too big to permit a hasty study, and it is the foreign correspondent’s job to present a whole picture, not a part of it. And here are the facts:
There is a serious shortage food shortage throughout the country, with occasional cases of well-managed State or collective farms. The big cities and the army are adequately supplied with food. There is no actual starvation or deaths from starvation, but there is widespread mortality from diseases due to malnutrition.
In short, conditions are definitely bad in certain sections- the Ukraine, North Caucasus and Lower Volga. The rest of the country is on short rations but nothing worse. These conditions are bad, but there is no famine.
The critical months in this country are February and March, after which a supply of eggs, milk and vegetables comes to supplement the shortage of bread – if, as now, there is a shortage of bread. In every Russian village food conditions will improve henceforth, but that will not answer one really vital question—What about the coming grain crop?
Upon that depends not the future of the Soviet power, which cannot and will not be smashed, but the future policy of the Kremlin. If through climatic conditions, as in 1921, the crop fails, then, indeed, Russia will be menaced by famine. If not, the present difficulties will be speedily forgotten.
If there are a million mom-and-pop landlords that got to enjoy 20% increases in rental income, is that enough to skew the numbers?
Hmm and the renters incomes wouldn’t have gone down either. They might be paying 50% of their income in rent, but their income is still the same.
Thanks for this well stated piece
– median household income calculated by using the redesigned questions was 3.2 percent higher than the median income found using the traditional questions.
From the Census via Brucie A. in Links today.
Also, if you don’t know the average number of people in the household from year to year, you can’t really determine if the growth in median household income is significant–or just the result of larger households as people move in together to save expenses.
Very good point. We know for a fact that a growing share of Millenials are still living with their parents compared to a few years ago. So one Millennial living in his parents’ basement and working at Starbucks would push that family’s income up considerably.
Yes, I could find neither number per household nor earners per household in the Census report. But when men & women were separated, neither cracked 3% which made zero sense. I agree there’s an effect of more incomes per household, but nothing like the scale of redesigning the questions.
thanks for highlighting that comment and its link. Re-designed questions _and_ gas prices or inflation indices played a big part in the changes. Here are the inflation indices used by Census (called CPI-US-R or something like that) for the past few years:
So from 2010-2014 the price inflation indices had been paring down any puny median income gains. In 2015, the deflator (at least the one the Census uses) had a miniscule increase and not much paring occurred. A series of fortunate events for the PR peeps.
I hope we hear about the alternatives to the capitalist system, at least the one that might work. Seems to me the capitalism needs to be overthrown completely in order for another system to be introduced.
I am on the fence about that. It would be a step to just offer an alternative system that is competitive with capitalism.
However, it does seem capitalism tries to replace every obstacle in its path by whatever means necessary.
“But even if you look at the jobs recovered, over and over again you see that a job that was secure, a job that had good benefits and a job at a high wage gave way for the same person to have to go back to work at job with less security, less benefits, and lower wages. ”
I read somewhere recently, but did not get a link, that during the last eight years, zero full-time regular jobs have been added to the work force.
I have read at many other sites that at least 75% of all new jobs are low-paying. You’d have to research just how many of them are part time since part-timers are counted as fully employed.
Well, how do you expect to get “terrific productivity gains” for American workers if you don’t cut their pay, cut their benefits, lay off half of them, and demand the remainder cover their previous workload PLUS the additional work that their layed-off fellows used to do?
Productivity = fewer workers doing more work for less pay/benefits. It’s REQUIRED in the current system to be this way.
The correct fix: require pay/benefits for WORKERS be tied to productivity. If productivity goes up, then so MUST worker pay.
CEOs are entirely unproductive, however, and their pay/benefits can be (and should be) cut 50% at least.
Let’s get to the underlying fundamental problems.
Mr. Upside-down and Mr. Back-to-front have taken over the global economy.
Throughout history there have been very poor people and very rich people.
Looking at 5,000 years of human civilisation the Classical Economists of the 18th Century believed the poor would never rise out of a bare subsistence existence. This was the way it always had been and always would be.
Every social system since the dawn of civilization has been set up to support a Leisure Class at the top who are maintained in luxury and leisure through the economically productive, hard work of the middle and lower classes.
The lower class does the manual work; the middle class does the administrative and managerial work and the upper class lives a life of luxury and leisure.
We still have a leisure class in the UK today, we call them the Aristocracy who are supported by the hard work of the lower and middle class through their investments.
Capitalism is about capital (wealth), the clue is in the name.
We used to have third world and first world nations.
The third world nations had very rich people and very poor people and paid no attention to creating a civilised society where there was some redistribution to improve the standard of living for those lower down the scale. The same system that has existed for 5,000 years.
The first world nations used some redistribution to improve the standard of living for those lower down the scale to create a modern civilised society.
Mr. Upside-down looked at the information available and concluded the system trickled down, silly old Mr. Upside-down had got everything upside upside-down.
He lowered tax on the wealthy, removed redistribution and services for those lower down the scale and personal wealth rapidly began to polarise.
He had taken away the things that differentiated first world nations and third world nations and soon all the first world nations started to resemble third world nations as the middle class began to disappear.
Soon there were problems with global aggregate demand and Mr. Upside-down couldn’t work it out at all.
In the Bretton-Woods agreement it was known there had to be a recycling of the surplus to ensure the wealth of nations didn’t diverge and polarise. Re-cycling the surplus was necessary to keep the system going.
Mr. Back-to-front looked at the symbol for divergence and thought it was the symbol for convergence, silly old Mr. Back-to-front had got it all back-to-front.
He designed a single currency area with no mechanisms for recycling the surplus
The rich nations got richer and the poor nations got poorer.
The rich nations in surplus, invested their surplus and got richer.
The poor nations, that took on debt to consume, had to keep making ever rising interest payments and got poorer until they gradually started to reach max. debt.
The poorer nations reached max. debt and their economies collapsed and Mr. Back-to-front couldn’t work it out at all.
What is today’s ideal?
Small state, raw capitalism.
We had that in the UK in the 19th Century, what did it look like?
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
4) Child Labour
Immense wealth at the top with nothing trickling down, just like today.
This is what Capitalism maximized for profit looks like.
Labour costs are reduced to the absolute minimum to maximise profit.
The majority got a larger slice of the pie through organised Labour movements.
The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour.
Milton Freidman used rigorous, scientific methods to analyse small state, raw capitalism.
1) It trickles down
2) We should remove all forms of Keynesian redistribution and entitlements for those lower down the scale.
3) We should remove all organised labour movements.
His analysis was so rigorous and scientific it was seen as a great model to roll out for globalisation.
Inequality sky rockets as taxes on the wealthy are lowered.
Poverty and hardship increase massively for the majority as redistribution is removed.
Two billion workers in China and India are added to the global labour force, which cause massive downward pressure on wages in the West.
The only mechanism for increasing wages, organised labour movements, is removed and so there is just constant downward pressure on wages.
As the global consumer is impoverished the system starts to collapse through lack of demand.
As the system trickles down, it is deemed necessary to inject stimulus into the top of the economic pyramid, the banks.
Nothing trickles down and asset bubbles continue to inflate further.
Why isn’t it working?
Milton Freidman’s rigorous and scientific analysis was totally and utterly wrong.
How was 19th Century capitalism ever going to support a consumer society?
You would have to ask Milton Freidman or one of his disciples that, as the idea is patently preposterous.
Why don’t the populists like it?
19th century capitalism only delivers a basic subsistence existence for those at the bottom.
Ross Perot tried to tell the US in 1992 that 19th Century capitalism was not a good thing, but no one took any notice.
No matter what economic system were to be deployed, it would be derailed by the onslaught of the impending climate chaos. Throughout the history of industrial civilization, the environmental costs of our rapacious resource exploitation have been ignored in the accounting, and now the whole human experiment (along with all other species) is being threatened with annihilation due to having passed critical tipping points in the earth’s climate regulating systems. Not only has capitalism been the impetus for this habitat degradation, but it has destroyed democracy and enabled a resurgence of feudalism and the practice of perpetual war. So, why do we continue to play this deadly game? …because most humans are inherently self-obsessed and think we are exceptional, which leads to faith-based fallacies of our immunity to the laws of nature. That is why all talk of economic reform is useless and we are doomed.
Cherrypicking apparently good bits of news won’t do the trick but it is time and soul consuming to debunk rosy pictures and I think this is the objective: to have people wasting time just thinking why are things so bad for me, what’s wrong with me that I can’t catch up to the trend. Well… nothing that Prozac can mend mate!