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Although there
have been a few signs of being pushed into a more accommodating position on
foreign policy, the Bush administration has acted in economic policy on behalf
of only one constituency, Wall Street. Said to be reading a biography of Teddy
Roosevelt’s later years during the holiday break, the firstborn of a man who often
changed positions for political reasons has shown no intellectual appetite for
moderation or adjusting for reality.
Stubborness is not an asset in balancing complex economic forces, and coupled
with the power of the White House can be tragic when confused with resolve of
purpose. -kwc The Economy and Mr. Bush Washington Post
Editorial, Wednesday, December 28, 2005; A20 THE PAST YEAR has been
remarkable for the economic disasters that did not happen. The huge U.S. trade
deficit, which threatened a collapse in the dollar and a destabilizing spike in
U.S. interest rates, actually delivered neither. High oil prices, which peaked
dramatically after hurricanes devastated the Gulf Coast, created neither gas
lines nor the wider economic fallout that many had anticipated. Instead, the
U.S. economy kept growing at a rate close to the impressive 4.2 percent notched
up in 2004, which many had assumed was unsustainable. All this testifies to the
flexibility of the economy and the wisdom of the Federal Reserve -- though it
shouldn't be assumed that the trade deficit, even bigger now than it was a year
ago, will remain forever free of consequences. Yet on one important
measure, the economic news hasn't been as good. The majority of workers have
not felt the benefits. The issue is not joblessness: Ten years ago economists
debated whether unemployment could fall below 6 percent without triggering
inflation, but in November joblessness stood at just 5 percent, down from 5.4
percent a year earlier -- a feat that the euro zone, with an unemployment rate
of 8.3 percent, can only envy. Rather, the problem for workers lies in
take-home pay. Wages for blue-collar manufacturing workers and non-managers in
services have remained stagnant since the economic recovery began in November
2001. Part of the reason
lies in the rising cost of non-wage benefits, especially health insurance. The
value of benefits received by the average civilian worker rose 5.1 percent in
the year to September, and that increase followed two years in which benefit
costs were roaring ahead at a rate of more than 6 percent. These increases,
which outpaced inflation, help explain disappointing wages. If it costs more to
provide medical insurance to workers, employers will pay themselves back by
holding wages down. But it may also be
true that technology and globalization are contributing to wage stagnation; if
workers can be replaced by machines or foreigners, they have limited bargaining
power. In the four years since the recovery began, inflation-adjusted
compensation (that is, wages plus benefits, as measured by the government's
Employment Cost Index) has risen just 0.8 percent per year on average, less
than in past recoveries and less than gains in productivity would seem to
justify. One might expect wage gains to improve as the recovery matures and the
economy reaches full employment. This may yet happen: After all, neither
technological progress nor globalization prevented solid wage gains in the
1990s. But so far there's no clear evidence that the corner has been turned. Moreover, what pay
gains there have been are distributed unevenly. Educated workers have done
best: In manufacturing, the compensation for white-collar workers rose 4.8
percent in nominal terms in the year to September, whereas the compensation for
blue-collar workers rose only 2.2 percent. Equally, some sectors did better
than others: Blue-collar aircraft workers wracked up gains of 15.6 percent,
while food-store workers managed only 1.9 percent. It's a rule of political
life that losers complain louder than winners celebrate, so the sense of a
joyless economic recovery is compounded. What policy
prescriptions flow from this? It would be wrong to suppress variations in wage
gains across the economy, since these help shift workers to the industries that
need them most. But the increasing rewards for education underline the
importance of the Bush administration's efforts to improve public schools,
while the deleterious effects of health care inflation on wages point to the
urgency of measures that could cut wasteful health spending, an issue on which
the administration's agenda is confused. Finally, the signs that market forces
may be making it hard for workers to win pay gains raise fresh questions about
President Bush's tax strategy. Mr. Bush has cut taxes on capital, even though
capital has increased its share of the proceeds from the economy; the cuts may
ultimately force a compensating increase in taxes on workers, whose incomes
haven't done as well. This amounts to common sense inverted. Rather than
counteracting a troubling aspect of the economy, Mr. Bush's policy makes it
worse. http://www.washingtonpost.com/wp-dyn/content/article/2005/12/27/AR2005122701080.html |
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