[was: RE: [PEN-L] it's over!] I wrote: > >But since the 1970s, there's been a widening gap between these two, > >as the political economy of US growth has become less and less > >focused on autocentric (national) accumulation and more > >international and as the welfare state has shrunk or been > >decentralized to the states. Neo-liberalism replaced New Deal > >liberalism. > > A period that added over 20 million jobs, and, starting in 1995, saw > a reversal of the long real wage decline. How'd that happen, in your > model?
I don't have a model, though I guess I have a schema. Private-sector demand boomed (due to rising profit rates up to 1997 or so, continued high expected profit rates, and the stock-market bubble). In Keynesian terms, C+I rose. This was allowed to occur by the Federal Reserve, which even though it can't "push on a string" very well to reverse recessions, could have slowed the bubble economy. This obviously increases the demand for goods and services, though the late 1990s productivity-growth boom meant that the impact on employment was weakened. But that boom was also part of the cause of the three forces listed in parentheses above that encouraged the C+I increase. In practice, it turned out that the demand for products increased enough to allow rising employment. As for the rise in real wages, that was partly a result of the 1998 rejiggering the calculation of the consumer price index, but it wasn't entirely. In the old political economy of the 1950s and 1960s, real wages were relatively independent of employment and unemployment, because of the role of unions and welfare-state programs, along with the insulation of many companies from price and product competition. In the 1990s, real wages were more and more set by "market forces," so that an increase in the demand for labor-power could cause the reversal Doug refers to (and was relatively dramatic, reversing the fall of the early Clinton years). The fact that productivity was growing even faster also meant that resistance to the wage increases was weaker.[*] (There's a useful graph on page 43 of Bob Pollin's book. Too bad the book isn't available generally.) The increasing marketization of wage determination also suggests that downside flexibilty of wages has increased too, which may be one reason why the Fed is so concerned with deflation these days. (A true deflation has not just falling prices but falling money wages, forming a spiral.) Of course, there's still some momentum to the increase in real wages, based on past history, so that real wages are still increasing (except for the first quarter of 2003, when they stayed put). But nonethess, we see real wages slumping relative to labor productivity in 2001-3 (accordng to BLS data). (The data are for all business, but I'm pretty sure it's true for other levels of aggregation.) [*] this doesn't mean that conventionally-measured real wages increased enough to compensate for previous stagnation or for increased non-market costs. But that's another question. Jim
