Where Did All the Money Go?

Back in the US, the Labor Day holiday is about to take place. This particular holiday was originally established as part of the US government’s attempts to divert interest in and celebration of May Day – the international day of workers’ rights that’s commemorated around the globe on May 1.

This year in St. Paul, Minnesota, the annual Labor Day picnic on Harriet Island has been cancelled due to budgetary reasons, prompting an editorial in the Minneapolis Star Tribune to observe that “it’s a fitting metaphor for a society that has consigned organized labor to the back pages of history and placed its faith in free markets to allocate the spoils of economic growth.”

Yet before totalling dismissing organized labor, the Star Tribune calls for Americans to “take a look at what is actually happening in the U.S. economy today,” and offers some important statistics for just such an examination.

Following is an extended excerpt from the newspaper's Labor Day editorial, presented with thanks to my friend Jim O’Leary who first alerted me to it.

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Little to Celebrate on Labor Day
Star Tribune (Minneapolis)
September 4, 2006

[ . . . ] In the last 10 years, the productivity of the average worker has surged by 30 percent. Yet wages and salaries have risen just 11 percent. Total compensation (including pensions and health insurance) has climbed even less, and the household income of the median family is up just 7 percent.

Since the recession of 2001, the overall economy has been growing steadily for five years. Yet the income of the median household is down, the number of people in poverty is up, and the number of uninsured Americans is at an all-time high – trends that are unprecedented in previous postwar recoveries.

Where did all the money go? The distinguishing feature of the 2001-2005 expansion is the remarkable share of income that has gone to corporate profits and high-income households. The Center on Budget and Policy Priorities, a Washington think tank with liberal leanings but impeccable math, reported Thursday that corporate profits this year captured the largest share of national income in half a century, and that the share of national income going to employee compensation (even including health insurance) is at its lowest level in nearly 40 years.

Of course, there’s nothing wrong with an economy delivering healthy returns to capital and skill, for that rewards investment and ambition. For a century or more, American economic history has been a tug of war between capital and labor.

But at some point the pendulum swings too far. When average Americans can’t afford health insurance, when schoolteachers and firefighters can’t afford to live in average neighborhoods of average cities, when middle-class parents can’t afford college for their kids – that’s when a society finds its political cohesion and civic confidence unraveling.

For just this reason, most modern industrial nations – Japan, Germany, Britain, Korea, France, Australia, Italy, Canada – have what economists call “mediating institutions.” They take different forms in different countries – strong unions, family allowances, universal health insurance, a high minimum wage – but in general they make sure that economic progress produces the results that society wants. The United States stands out in this crowd: It is the world's richest big country, but also the one with the highest poverty rates, the worst inequality, the most uninsured people and the most fragile middle class.

Americans might have decided sometime in the last 30 years that unions were the wrong tool to insure the uninsured, give each worker a pension and secure a future for the middle class. But if so, then they need to find an alternative.


See also the previous Wild Reed post, R.I.P. Neoclassical Economics.