Class War in America: the Book |
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The
“Wage Inflation” Con:
It’s
Not Wage Inflation, It’s Profit
Inflation Many
members of the American public have come to accept the manipulation of the
prime interest rate as a necessary tool to curb increases in workers’
wages. After all, as conservatives are fond of repeating, rising wages
create a greater demand for goods and services, and a greater demand for
goods and services raises prices—which hurts everyone, rich and poor
alike. What
conservatives never acknowledge, however, is that when the incomes of any class of people go up, there
is an inflationary result. Although the disastrous effects of inflation
caused by the wealthy will be covered in greater detail in Chapter 18,
it’s sufficient to point out here that they have been driving up the
prices of all manner of things, especially the depleting supply of
desirable land and the consequent skyrocketing costs of homes and rent.
Conservatives
also gloss over the obvious fact that inflation bene fits those who are
causing it and can stay ahead of it, which is what America’s wealthiest
citizens have been doing for more than 20 years now. And for those same 20
years, most workers’ incomes have lagged behind the inflation rate. It’s
well past time for their rising
incomes to cause a bit of inflation, although, as will be pointed out
shortly, that doesn’t necessarily have to be the
case. The
Conservative Spin on Inflation When
conservatives try to justify the huge incomes of America’s top 20%, they
claim that “wealth is not a zero-sum game.” In other words, there is an
unlimited sum of money, and the more the wealthy make, the more money will
“trickle down” to others when they spend it. Result: everyone
benefits. With
no regard for logic, however, when they speak of inflation, they always
call it “wage inflation.” They
reason that, if workers make more money, it has to come from a finite
money pie—and that pie will have to be made bigger via higher prices. So, when it
comes to worker incomes versus
CEO and investor incomes, it’s as zero-sum as you can get. The more
the workers get, the less corporate profits and, hence, lower income for
stockholders and the CEO.
Conservatives
also never consider the possibility that corporations could accept lower
profits, allow wages to increase, and still not raise prices. In addition,
they ignore, at least in public, the economic benefits of “gush
over-and-up” that occurs when workers make and spend more money in the
marketplace. Despite
these realities, financial conservatives were able to sell the public on
the idea that wealth is not a zero-sum game, that we need not worry about
the skyrocketing incomes of the wealthy, and that we need worry only about
minuscule increases in working-class wages. After that bit of
sleight-of-hand, it was a simple matter to convince voters to elect
politicians into office who had the “political courage” to keep workers’ wages from
going up. To
keep this hoary scam alive and kicking, The Wall Street Journal, Forbes, Fortune, Barron’s, and Business Week never admit that the
incomes of investors and corporate executives cause inflation—or that, in
their opinion, workers shouldn’t share in the prosperity of our country.
They simply blame inflation on the “wage-price spiral.”
Then
they sadly shake their collective headlines and conclude that there’s
nothing that can be done about inflation, except to destroy workers’
incomes. This has been their ritual for the past two decades, especially
during the explosive economic growth of the 1990s. The
Wall Street Journal
distorted economic realities when, contrary to all the evidence, it blamed
inflation on workers’ wages, instead of corporate greed. In a 1994
headline, it screamed that our economy was “Entering the Wage-Price
Spiral.” It explained the view of some economists about what can result
when …the
demand for workers already exceeds, or is close to exceeding, the supply
of people available to fill the jobs. When that happens, employers boost
their pay offers, and a wage-price spiral may start. Since labor
represents 70% of final product costs, inflation can
result.1
The
basic problem, as conservatives see it, is that there are simply too many
workers for them to have a decent living. So, · A
“wage-price spiral” is when
wages go up and corporations raise their prices in order to maintain the
royalty status of their investors and executives. Conservatives never
worry about inflation caused by the skyrocketing incomes of the wealthy,
apparently because there are relatively few of them, say, the top 20%
of
Americans. · But
the large number of workers who produce America’s wealth make up 70% of
final product costs. Obviously, if our new class of American royalty
shared the wealth with so many people, they wouldn’t be royalty anymore.
Despite
the Journal’s fears, we had three more years of
record corporate profits and stagnating wages, when, in 1997, Forbes added its own spin to the
“wage-price spiral.” Its periodic column, “The Forbes Index,” referred to
comments of Anthony Chan, chief economist at Banc One Investment Advisors
who was …worried
because, for the five quarters ended in September, average hourly earnings
rose faster than the overall Employment Cost Index (wages plus
benefits)—meaning nonwage benefits have been lagging. Chan expects these
benefits to surge this year, driving up total compensation and forcing
businesses to protect margins by raising
prices.2 Realize
what Chan is saying here: At a time when corporations and investors have
been making outrageous profits—and not sharing any of the benefits with
workers—future labor costs will force coporations to raise prices
if they are to continue making huge profits! Fortune
also joined this unholy crusade—blaming workers for inflation—with the
same perverted distortion: that an increase in workers’ wages, not
corporate greed, is the primary cause of inflation. Under the head, “It’s
Fear of Inflation That’s Spooking the Market,” it repeated the same
nonsense: With
the unemployment rate already low, many traders and investors quickly
concluded that companies bidding for scarce workers would start offering
higher wages. Firms would then try to recoup by boosting prices, and we’d
be back in the same inflationary inferno that’s burned bond investors
before. Stephen Roach, Morgan Stanley’s influential chief
economist, is even pushing a “worker backlash” thesis, arguing that after
years of little real growth in wages, workers now have enough leverage
to garner a bigger share of the pie.3 Not
to be left out of this inspirational movement, Business Week joined the chorus
under the head, “Inflation Is Still on the Mat—But Don’t Count It Out Just
Yet.” The
biggest concern for 1997 will be a tight labor market. Inflation has been
down for so long, a few analysts have pronounced it dead…. To be sure,
price pressures have been almost nil. Last year, slower growth in benefits
offset bigger pay gains, even in a tight labor market.… The question is:
Will inflation stay down? In 1997, higher labor costs will mean that many
companies must either raise prices or watch their profits get
squeezed.4 These
publications were not referring to the then-current wages. They were referring
to the fear of, or the possibility of, workers’ wages
going up! And they concluded that if wages should happen to go up, it
would be fair and just—to our new American Royalty—to recoup their
outrageous profits by raising prices. After all, corporations have no
moral obligations to their employees or the public. Their obligation is
only to their executives and stockholders. Note
also that an “inflationary inferno” is never due to obscene levels of
profits. It is always due to the increase in workers’ wages. Prior to this
period, as noted in Fortune,
“there had been years of little real growth” in workers’
incomes. The
fraudulent nature of the “wage-price” con is especially evident when you
read two articles that appeared in the same issue of Business Week. First was the
traditional blame-the-workers nonsense under the head, “Trouble Ahead in
the Battle to Contain Labor Costs.” Companies
can no longer rein in benefits to offset pay raises.… Rising labor costs
mean that businesses will face a tough choice: Raise prices, if they can,
to cover the added expenses and protect profits. Or hold prices steady,
hoping that increased sales and productivity gains will save the bottom
line. How the price-profit dilemma plays out will determine inflation’s
performance this year…. Tight labor markets also
mean that workers may begin to lose their “heightened job insecurity”
that, in Greenpan’s words, “explains a significant part of the restraint
on compensation and the consequent muted price
inflation.”5
After
thus claiming that companies will have to raise prices if workers get more
money, Business Week then
unwittingly gave us a classic description of greed and profit inflation in a following
article of the same issue. Its
headline revealed “An Enormous Temptation to Waste” for corporations and
pointed out that U.S.
companies are piling up cash.… “In company after company, we’re seeing
huge buildups of cash,” says Jeffrey D. Fotta, CEO of Ernst Institutional
Research in Boston…. All told, liquid assets held by U.S. nonfinancial
companies hit a staggering $679 billion at the end of the third quarter,
up 21.5% in a year.… But too much money creates a vexing problem: what to
do with it. “Having that much cash is an enormous temptation to waste,”
cautions Steven N. Kaplan, a professor of finance at the University of
Chicago’s business school.… The worry is that many
companies are taking on cash so fast they can’t spend it efficiently.…
Some companies, such as Boeing Co. and the Big Three automakers, plan to
keep huge cash reserves to see them through the next economic downturn…. “Can you ever have
too much capital?” asks Maurice R. Greenberg, chairman of insurance giant
American International Group, Inc., who continues to add to his company’s
coffers. Like many executives, he thinks
not.6 Could
the hypocrisy of blaming inflation on workers’ wages be clearer? After 20
years of warfare on the incomes of working
Americans: §
Corporations
now have so much money they have an “enormous temptation to
waste.” §
For
years companies have told workers that they couldn’t raise wages because
“competition demands it.” If we were to have a healthy economy, and remain
competitive, companies had to reduce labor costs by firing employees, also
called “restructuring.” §
And
what are American corporations doing with all the money that they got from
the sacrifices they forced on working Americans? Simple. To hell with
working Americans! They’re going overseas where wages are even
lower. §
General
Motors made the headlines during this same time period, fighting the
unions that wanted more investment in jobs in this country. GM’s position:
competition demands that we go over-seas, that we continue to pay
executives huge salaries, that we give outrageous returns to wealthy
investors—and, by the way, who-ever said the American employees who built
this company had any rights? §
And
if corporations spend their money so fast they can’t “spend it
efficiently”—hey, that’s their right. §
Naturally,
CEOs and wealthy investors must be able to make it through “the next economic downturn.” How
nice. Too bad the bottom 20% of working Americans aren’t sure how they’re
going to make it through next week, even in this “prosperous”
econ-omy. Take
a look at two more revealing articles—again from the same issue of a
single publication. On May 5, 1997, The Wall Street Journal made a detailed analysis of
the possibility that working Americans may start making higher incomes.
Under the head, “Economy’s Hot Pace Will Cool a Bit,” the Journal observed
that …it
is hard to ignore the fact that the unemployment rate dropped to 4.9% of
the work force in April—the lowest level since 1973—from 5.2% in March….
The question now is: How much will the economy slow?…
The economy may be slowing
to a more-sustainable pace, as the Fed had hoped, but the jobless rate
remains too low for the Fed’s comfort.7 In
another article of the same issue, the Journal proclaimed that “Corporate
Profits Leap Unexpected 18%” in just one quarter of the year: Companies’
earnings surged a better-than-expected 18% in the first quarter, boosted
by a surprisingly strong economy, slowing growth in worker-benefit costs
and a renewed drive for more efficiency.… Most companies in industries
ranging from autos and airlines to steel, semiconductors and
pharmaceuticals beat Wall Street estimates of earnings
growth.8
With
both kinds of data hitting Republican and conservative Democrat
politicians between the eyes daily—often in the same publication—you
know that what they are doing
to working Americans is deliberate. The
people who read these publications—politicians, corporate executives of
all levels, investors, small business owners, inheritors of wealth,
doctors, accountants, investment bankers and so on—all have to know
that: §
Every
piece of objective evidence shows that the income and wealth disparity
between themselves and working Americans is becoming a vast
chasm. §
Our
present conservative economic policies ensure that this condition will
continue; wages will stagnate and corporate profits will soar, at least until consumers run out
of money. §
Corporations
could share more of their bounty with working Americans without having to
raise prices, if they would accept lower profits. And, in
sum, §
They
are enjoying their affluence on the backs of, and at the expense of, working
Americans. So
the bad news for workers is that anytime their wages start going up, it will be a
signal for conservative politicians to take additional action against
them, even if corporate profits went up 18% in the previous
quarter. This
period, from 1994 to 1998, is especially significant. There still was
considerable doubt among conservative economists that working-class
Americans had been entirely stripped of what little econom-ic and
political power they once had. Almost every issue of every conservative
financial publication during this time had some refer-ence to the state of
wage increases across the country. By
mid-1999, at least some conservatives were beginning to breathe a bit
easier. On April 30, The Wall
Street Journal repeated its feigned
mystery-that-defies-economic-theory with the somewhat optimistic head and
sub-head, “Pace of Wage Growth Slowed in Quarter; Slowdown Defies
Textbooks As Figures Come in Face of Tighter Labor Market.” It went on to
note that The
news may not be great for workers.… But it’s good for companies, and for
investors and policy makers worried about the possibility of inflation. A
slowdown in compensation helps explain why profits for many companies
rebounded in the first quarter.9 Incredible.
After more than 20 years of economic growth, evertighter labor markets,
continuing wage stagnation, rising corporate profits and a soaring stock
market—policy makers still “worry about the possibility of inflation.” This,
at a time when wage growth was actually slowing. With
these trends continuing well into 1999, one would think that conservatives
could relax a bit about workers making more money. Not so. Three months
after the above optimistic Journal
article, in July 1999, Business
Week resumed the worrisome trend and reported, “Good News about Jobs
Is Bad News to the Fed”: The
Federal Reserve cannot come out and say it directly, but the main reason
policymakers want to restrain economic growth is to loosen up the labor
markets. To admit that would be political suicide. But the Fed knows that,
with markets already so tight, job growth must slow if the economy is to
avoid a surge in wages that could trigger a rise in
inflation.10 One
wonders why Business Week
thinks that the Fed can’t “say it directly”—that our country’s official
economic policy is to keep working-class wages from going up. Greenspan
has been making such public pronouncements for years now. However,
possibly it would be political suicide to admit the extent to which Fed policy is
overtly, consciously and blatantly anti-worker and pro-investor.
So
far, we’ve been concerned with workers’ wages, the prime rate and
inflation. Now let’s look at The Great Debate, in which America’s modern
barbarians speculate about the best way to destroy workers’
incomes—without cutting into corporate profits. Now go to:
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