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How to wage war on low pay

| Monday, October 1, 2018

The American economy is suffering from forty years of flat wages, the result of a profound, and profoundly unequal, productivity-pay gap. From the end of the Second World War to the mid-1970s, productivity and hourly compensation tracked very closely, with both growing by over 90 percent; since then, on the other hand, productivity has risen 77 percent while real hourly pay has grown only about 12 percent. This is nothing less than a chronic crisis, a stalling of the American dream.

As I detailed in my previous column, however, many analysts and policymakers don’t treat this persistent problem as an emergency commensurate to the economic catastrophe of the Great Depression. But, just like that earlier crisis, this one demands a reassertion of the public’s right to deploy government in order to regulate the powerful in the interests of protecting the vulnerable and promoting the common good.

When the stock market crash of 1929 ushered in the worst economic crisis in U.S. history, the American people and policymakers combined to remake the democratic capitalist order with workers and consumers at the center. The New Deal — the most ambitious program of regulations and reforms in US history — secured bank accounts, insured home loans, mandated the minimum wage, required employer participation in an old-age pension program and encouraged unionism to give laborers a tool to fight for higher pay and a voice at work. The goal was to promote widespread prosperity via a commitment to “social security,” to use the language of its most famous law — and the New Deal framework did just that for the thirty years following 1945.

Critics of government regulation love to say that the New Deal failed to solve the Great Depression, pointing out that economic recovery only took hold with US involvement in the Second World War. But winning the greatest war in human history took required greater government involvement in economic life than even the New Dealers envisioned, legitimizing public oversight of wages, prices, employment relationships and consumer protections. One major lesson of the war was that government could — and should — effectively shape the economy, from the trading floor to the factory floor, in order to promote growth more democratically produced and fairly distributed.

The booming war economy, followed by the long postwar economic boom, established the U.S. as the world’s first middle-class society, where Americans grew accustomed to expecting higher wages, more discretionary income and better opportunities for one’s children with each succeeding year. And the widely shared prosperity of both the wartime and postwar booms rested on the New Deal’s foundation.

We forget at our peril that this Golden Age of Capitalism emerged from this firm regulatory framework: when a worker toiled more than forty hours per week, she was entitled to time-and-a-half hourly pay; when a worker was laid off or retired, he was guaranteed unemployment compensation or a pension; and, when a worker was covered by a collective bargaining agreement, as more than a third of workers were by 1955, he or she was empowered to fight for a raise as well as protected against arbitrary discrimination and dismissal via seniority and grievance procedures. All these innovations, plus a progressive tax system that redistributed income from the top to programs for the general welfare, produced what some economic historians call “the great compression,” reducing inequality in wages and wealth.

For the past four decades, however, we’ve witnessed the erosion of this New Deal order, with policymakers increasingly limiting regulations on capital, abandoning protections for workers, and reducing taxes on the rich, all in the name of spurring economic growth with the promise that everyone will benefit. Clearly this hasn’t happened, though, as the wealthiest among us — the top 1 percent — now enjoy a greater share of US income than at any time since, you guessed it, 1929, just before Americans embraced the New Deal to wrestle with extreme economic inequality.

Meanwhile, employers have grown accustomed again to treating labor as an input no different than machinery and materials, and they’ve increasingly figured out ways to avoid the New Deal regulatory rules altogether. Walmart is the poster corporation for this, consistently resisting unionization and avoiding liability for unemployment insurance.

Lest you misread my message here as a nostalgic longing to return to the halcyon days of yore, let me be clear. The point of studying the past is not to reproduce it, because history doesn’t repeat itself. The past is un-reproducable, because each historical moment features its own actors, factors and forces that combine to produce outcomes distinct from any other. Moreover, even if we could repeat the past, there are things about it we would never want to repeat, such as the racial and gender discrimination that governed American law and life for much of the New Deal era.

But we should look to the past to see how our predecessors confronted and sometimes conquered pressing questions, because doing so reminds us of two fundamental things: one, that our current social, political, and economic relationships are contingent and changeable rather than fixed and inevitable; and, two, that evidence of past examples of human resilience, bravery, creativity and cooperation can inspire us to undertake our our own efforts to make our world a better, safer and fairer place.

The New Dealers effectively tackled income inequality and social insecurity, and they did so in the midst of fighting an unprecedented economic collapse and a global war against fascism. Surely we can muster the capacity and the will to confront the return of similar challenges in our own era. We need a New New Deal to promote better pay and greater security for the American people.

In my next and final column, I’ll discuss some components of a just wage economy, one that integrates racial and gender equality as essential features of economic fairness. We’ve had forty years of flat wages and enduring race and gender gaps. If not now, when?

The views expressed in this column are those of the author and not necessarily those of The Observer.

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