Real Wages Decline Under Bush Economy genre: Econ-Recon & Polispeak & Six Degrees of Speculation
Statistics rarely lie. Many Republicans and a number of pundits have questioned why economic growth (increased GDP) hasn't been met by consumer confidence or a widely held belief that the U.S. economy is strong. Many have called for the Republican Party to tout economic growth in their efforts to hold control of the House and the Senate but recent data from the Commerce and Labor Departments may provide the clues as to why it may not be a convincing argument with many voters. Read the full New York Times article here.
With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.
That situation is adding to fears among Republicans that the economy will hurt vulnerable incumbents in this year’s midterm elections even though overall growth has been healthy for much of the last five years.
Insert tax cuts for the wealthiest Americans and a favorable environment for large corporations and it shouldn't be difficult to understand why the average American feels left out of the most recent economic expansion. Perhaps this latest data will once and for all dispel the oft held Republican notion that trickle down economics will serve the interests of all Americans. While it may have led to some additional investment as well as some job growth, in the long run it concentrates more wealth in fewer hands at the expense of the average wage earner.
The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.
As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability."
As one looks at the historical significance provided with this data, it is hard to ignore the magnitude of the Bush economic agenda. Further, it helps demonstrate the degree to which this administration has sought to influence the fundamental constructs of the U.S. economy as well as how successful they have been in that effort. Unfortunately, that may well limit the ability of Republican candidates to use the economy to advantage in November. The favorable numbers simply aren't there for the majority of Americans.
Earlier this month, the University of Michigan reported that consumer confidence had fallen sharply in recent months, with people’s expectations for the future now as downbeat as they were in 1992 and 1993, when the job market had not yet recovered from a recession.
“Some people who aren’t partisans say, ‘Yes, the economy’s pretty good, so why are people so agitated and anxious?’ " said Frank Luntz, a Republican campaign consultant. “The answer is they don’t feel it in their weekly paychecks."
In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132 billion.
Over the last year, the value of employee benefits has risen only 3.4 percent, while inflation has exceeded 4 percent, according to the Labor Department.
This data also suggests that Democrats can benefit from an emphasis on the need to address healthcare costs and the growing numbers of uninsured Americans. The growing shift of health insurance costs to employees continues to minimize the impact of wage increases, leaving the increases in take home wages relatively insignificant. Add in concerns about social security, failed pension plans, and the reduced influence of unions and one can see why many workers are hesitant about their economic future.
In another recent report on the boom in profits, economists at Goldman Sachs wrote, “The most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income." Low interest rates and the moderate cost of capital goods, like computers, have also played a role, though economists note that an economic slowdown could hurt profits in coming months.
What little optimism that has been present may have merely resulted from the favorable housing market and low interest rates...factors that allowed many Americans to draw upon home equity in order to keep pace with rising costs and insufficient wage increases. Should the housing market falter...and there have been recent indications that the decline has begun...one would expect even less economic confidence and potentially devastating consequences for many who have over borrowed or will be unable to sustain rising mortgage costs.
“There are two economies out there," Mr. Cook, the political analyst, said. “One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings.
“And then there’s the working stiffs,’’ he added, “who just don’t feel like they’re getting ahead despite the fact that they’re working very hard. And there are a lot more people in that group than the other group."
In 2004, the top 1 percent of earners — a group that includes many chief executives — received 11.2 percent of all wage income, up from 8.7 percent a decade earlier and less than 6 percent three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data.
But in a sign that Republicans may be growing concerned about the public’s mood, the new Treasury secretary, Henry M. Paulson Jr., adopted a somewhat different tone from Mr. Bush in his first major speech, delivered early this month.
“Many aren’t seeing significant increases in their take-home pay," Mr. Paulson said. “Their increases in wages are being eaten up by high energy prices and rising health care costs, among others."
As we approach November, should the economic indicators continue to create doubt, Republicans may find themselves with little to offer along the campaign trail. Assuming that economic growth, expressed in terms of GDP increases, will be sufficient to hold off Democratic gains may prove to be another miscalculation on the part of the GOP. In an election cycle that seems to be shaping up to be a "throw the bums out" mentality, economic declines may well be the final straw.