K
Kickin' Ass and Takin' Names
Guest
The Boom Was a Bust For Ordinary People
By Barbara Ehrenreich
Sunday, February 3, 2008; B01
I t begins to sound a bit naughty -- all this talk about the need to
"stimulate" the economy, as if we were discussing how to make a porn
film. I don't mean to trivialize our economic difficulties or the need
for effective government intervention, but we have to face a
disconcerting fact: For years now, that strange stimulus-crazed beast,
the economy, has been going its own way, increasingly disconnected
from the toils and troubles of ordinary Americans.
The economy, for example, has been expanding, at least until now, and
growth is supposed to guarantee general well-being. As long as the
gross domestic product grows, World Money Watch's Web site assures us,
"so will business, jobs and personal income."
But hellooo, we've had brisk growth for the past few years, as the
president has tirelessly reminded us, only without those promised
increases in personal income, at least not for the poor and the middle
class. According to a study just released by the Economic Policy
Institute, real wages actually fell last year. Growth, some of the
economists are conceding in perplexity, has been "decoupled" from
widely shared prosperity.
I first began to sense this in the boom years of the late 1990s, when
I was working in entry-level jobs for my book "Nickel and Dimed."
While the stock market soared and fortunes were being made in the time
it takes to say "IPO," my $6-to-$8-an-hour co-workers lunched on hot
dog buns because that was all they could afford and, in some cases,
fretted about whether they could find a safe place to sleep.
Growth is not the only economic indicator that has let us down. In the
past five years, America's briskly rising productivity has been the
envy of much of the world. But again, there's been no corresponding
increase in most people's wages. It's not supposed to be this way, of
course. Economists have long believed that some sort of occult process
would intervene and adjust wages upward as people worked harder and
more efficiently.
We like to attribute our high productivity to technological advances
and better education. But a revealing 2001 study by the consulting
firm McKinsey & Co. also credited America's productivity growth to
"managerial . . . innovations" and cited Wal-Mart as a model
performer, meaning that our productivity also relies on fiendish
schemes to extract more work for less pay. Yes, you can generate more
output per apparent hour of work by falsifying time records, speeding
up assembly lines, doubling workloads and cutting back on breaks. That
may look good from the top, but at the middle and the bottom, it can
feel a lot like pain.
And what about the unemployment rate? The old liberal certainty was
that "full employment" would create a workers' paradise, with higher
wages and enhanced bargaining power for the little guy and gal. But
we've had nearly full employment, or at least an official unemployment
rate of under 5 percent, for years now, without the predicted gains.
What the old liberals weren't counting on was a depressed minimum
wage, weak unions and a witch's brew of management strategies to hold
wages and salaries down.
So thoroughly is the economy decoupled from ordinary experience that
according to a CNN poll, 57 percent of Americans thought we were
already in a recession a month ago. Economists may complain that this
is only because the public is ignorant of the technical definition of
a recession, which specifies at least two consecutive quarters of
negative growth. But most of the public employs the more colloquial
definition of a recession, which is hard times. And -- far removed
from whatever happens on Wall Street, the Nikkei, Dax, or the
curiously named FTSE -- most Americans have been living in their own
personal recession for years.
I could see this when I was doing research for a book on white-collar
unemployment in 2004. Although the economy was officially on an
upturn, I met laid-off people who'd been searching for a job for more
than a year and often ended up -- after selling their homes and
borrowing from relatives -- taking low-wage work as big-box sales
clerks or even janitors.
In the months ahead, we can expect the hard times to spread. Citigroup
has announced plans to eliminate 21,000 jobs; investment banks in
general will shed 40,000. The mortgage industry is in a meltdown;
Business Wire predicts a 37 percent increase in the number of
companies planning layoffs this year. This is what a stimulus package
needs to address: the persistent and growing struggles of the middle
class and the working class, which is increasingly conterminous with
the working poor.
There are reasons for doing so other than compassion. The chronically
poor and the battered middle class have become a tripwire in the
American economy -- generating defaults on debts, depressed
consumption and global market turmoil.
Consider how we got into the current credit crisis in the first place,
through defaults on subprime mortgages. These went to plenty of
affluent folks and have wreaked havoc in gated communities. But
overall, subprime loans were designed for, and snapped up by, the
poor. According to a recent study from United for a Fair Economy, 55
percent of subprime loans went to African Americans and 17 percent to
whites. Among whites, they went far more frequently to low-income
people than to the wealthy -- 39 percent compared with 24 percent.
Hence the subprime industry's noble boasts about providing the
opportunity for home ownership to people who might otherwise have been
excluded from it.
And why were so many Americans poor enough to turn to subprime
mortgages and other dodgy credit schemes? The chief reasons are low
wages and job insecurity. Chronically low wages afflict about 25 to 30
percent of the population -- more than twice the 12 percent the
federal government counts as "poor." And even earnings in the six-
figure range can be canceled overnight when an employer downsizes or
outsources, leaving a family without income or health insurance.
For years now, we've had a solution, or at least a substitute, for low
wages and unreliable jobs: easy credit. Payday loans, rent-to-buy
furniture and exorbitant credit card interest rates for the poor were
just the beginning. In its May cover story on "The Poverty Business,"
BusinessWeek documented the stampede to lend money to the people who
could least afford to pay the interest on it: Buy your dream home!
Refinance your house! Financiamos a todos! It wasn't just the bottom-
feeders that joined the unseemly frenzy to lend to the poor; big
companies, such as Wells Fargo and Countrywide Financial, plunged
right in. But somehow, no one bothered to figure out where the poor
were going to get the money to pay for all the money they were
borrowing.
When personal finances are squeezed hard enough, you have the
possibility of a genuine recession. People buy less, so growth
declines to the point where even the economic overclass has to sit up
and take notice. We saw the beginnings of that in the last Christmas
season, which even Wal-Mart survived only through perilously deep
discounting.
Not that we hadn't been warned. A century ago, Henry Ford realized
that his company would only prosper if his own workers earned enough
to buy Fords. But, like Wal-Mart, too many of our employers today
haven't figured out that their cruelly low wages would eventually
curtail their own growth and profits.
Government intervention, whether short-term or long-term, needs to get
to the heart of this problem by offering a hand to the poor and the
unemployed. Until the House capitulated to Bush two weeks ago,
Democrats seemed to be standing solidly behind a stimulus package that
would include an increase in food-stamp allotments and an extension of
unemployment benefits, both of which are screamingly obvious measures.
Current unemployment benefits last just 26 weeks in most states and
end up covering only a third of people who are laid off. Food stamps
are in even shabbier shape, with an allotment amounting to about $1
per meal. Nothing could be more stimulating than putting money in the
hands of those who will spend it quickly.
But you can't jump-start a car that lacks a working battery. We need
less titillating talk about "stimulus" and more commitment to some
fundamental repairs -- higher wages, a real safety net and a return to
progressive taxation among them. The challenge isn't just to prop up
stock prices but to rebuild an economy in which everyone shares the
good times -- and no one is consigned to a permanent recession.
http://www.washingtonpost.com/wp-dy.../02/01/AR2008020102828.html?hpid=opinionsbox1
By Barbara Ehrenreich
Sunday, February 3, 2008; B01
I t begins to sound a bit naughty -- all this talk about the need to
"stimulate" the economy, as if we were discussing how to make a porn
film. I don't mean to trivialize our economic difficulties or the need
for effective government intervention, but we have to face a
disconcerting fact: For years now, that strange stimulus-crazed beast,
the economy, has been going its own way, increasingly disconnected
from the toils and troubles of ordinary Americans.
The economy, for example, has been expanding, at least until now, and
growth is supposed to guarantee general well-being. As long as the
gross domestic product grows, World Money Watch's Web site assures us,
"so will business, jobs and personal income."
But hellooo, we've had brisk growth for the past few years, as the
president has tirelessly reminded us, only without those promised
increases in personal income, at least not for the poor and the middle
class. According to a study just released by the Economic Policy
Institute, real wages actually fell last year. Growth, some of the
economists are conceding in perplexity, has been "decoupled" from
widely shared prosperity.
I first began to sense this in the boom years of the late 1990s, when
I was working in entry-level jobs for my book "Nickel and Dimed."
While the stock market soared and fortunes were being made in the time
it takes to say "IPO," my $6-to-$8-an-hour co-workers lunched on hot
dog buns because that was all they could afford and, in some cases,
fretted about whether they could find a safe place to sleep.
Growth is not the only economic indicator that has let us down. In the
past five years, America's briskly rising productivity has been the
envy of much of the world. But again, there's been no corresponding
increase in most people's wages. It's not supposed to be this way, of
course. Economists have long believed that some sort of occult process
would intervene and adjust wages upward as people worked harder and
more efficiently.
We like to attribute our high productivity to technological advances
and better education. But a revealing 2001 study by the consulting
firm McKinsey & Co. also credited America's productivity growth to
"managerial . . . innovations" and cited Wal-Mart as a model
performer, meaning that our productivity also relies on fiendish
schemes to extract more work for less pay. Yes, you can generate more
output per apparent hour of work by falsifying time records, speeding
up assembly lines, doubling workloads and cutting back on breaks. That
may look good from the top, but at the middle and the bottom, it can
feel a lot like pain.
And what about the unemployment rate? The old liberal certainty was
that "full employment" would create a workers' paradise, with higher
wages and enhanced bargaining power for the little guy and gal. But
we've had nearly full employment, or at least an official unemployment
rate of under 5 percent, for years now, without the predicted gains.
What the old liberals weren't counting on was a depressed minimum
wage, weak unions and a witch's brew of management strategies to hold
wages and salaries down.
So thoroughly is the economy decoupled from ordinary experience that
according to a CNN poll, 57 percent of Americans thought we were
already in a recession a month ago. Economists may complain that this
is only because the public is ignorant of the technical definition of
a recession, which specifies at least two consecutive quarters of
negative growth. But most of the public employs the more colloquial
definition of a recession, which is hard times. And -- far removed
from whatever happens on Wall Street, the Nikkei, Dax, or the
curiously named FTSE -- most Americans have been living in their own
personal recession for years.
I could see this when I was doing research for a book on white-collar
unemployment in 2004. Although the economy was officially on an
upturn, I met laid-off people who'd been searching for a job for more
than a year and often ended up -- after selling their homes and
borrowing from relatives -- taking low-wage work as big-box sales
clerks or even janitors.
In the months ahead, we can expect the hard times to spread. Citigroup
has announced plans to eliminate 21,000 jobs; investment banks in
general will shed 40,000. The mortgage industry is in a meltdown;
Business Wire predicts a 37 percent increase in the number of
companies planning layoffs this year. This is what a stimulus package
needs to address: the persistent and growing struggles of the middle
class and the working class, which is increasingly conterminous with
the working poor.
There are reasons for doing so other than compassion. The chronically
poor and the battered middle class have become a tripwire in the
American economy -- generating defaults on debts, depressed
consumption and global market turmoil.
Consider how we got into the current credit crisis in the first place,
through defaults on subprime mortgages. These went to plenty of
affluent folks and have wreaked havoc in gated communities. But
overall, subprime loans were designed for, and snapped up by, the
poor. According to a recent study from United for a Fair Economy, 55
percent of subprime loans went to African Americans and 17 percent to
whites. Among whites, they went far more frequently to low-income
people than to the wealthy -- 39 percent compared with 24 percent.
Hence the subprime industry's noble boasts about providing the
opportunity for home ownership to people who might otherwise have been
excluded from it.
And why were so many Americans poor enough to turn to subprime
mortgages and other dodgy credit schemes? The chief reasons are low
wages and job insecurity. Chronically low wages afflict about 25 to 30
percent of the population -- more than twice the 12 percent the
federal government counts as "poor." And even earnings in the six-
figure range can be canceled overnight when an employer downsizes or
outsources, leaving a family without income or health insurance.
For years now, we've had a solution, or at least a substitute, for low
wages and unreliable jobs: easy credit. Payday loans, rent-to-buy
furniture and exorbitant credit card interest rates for the poor were
just the beginning. In its May cover story on "The Poverty Business,"
BusinessWeek documented the stampede to lend money to the people who
could least afford to pay the interest on it: Buy your dream home!
Refinance your house! Financiamos a todos! It wasn't just the bottom-
feeders that joined the unseemly frenzy to lend to the poor; big
companies, such as Wells Fargo and Countrywide Financial, plunged
right in. But somehow, no one bothered to figure out where the poor
were going to get the money to pay for all the money they were
borrowing.
When personal finances are squeezed hard enough, you have the
possibility of a genuine recession. People buy less, so growth
declines to the point where even the economic overclass has to sit up
and take notice. We saw the beginnings of that in the last Christmas
season, which even Wal-Mart survived only through perilously deep
discounting.
Not that we hadn't been warned. A century ago, Henry Ford realized
that his company would only prosper if his own workers earned enough
to buy Fords. But, like Wal-Mart, too many of our employers today
haven't figured out that their cruelly low wages would eventually
curtail their own growth and profits.
Government intervention, whether short-term or long-term, needs to get
to the heart of this problem by offering a hand to the poor and the
unemployed. Until the House capitulated to Bush two weeks ago,
Democrats seemed to be standing solidly behind a stimulus package that
would include an increase in food-stamp allotments and an extension of
unemployment benefits, both of which are screamingly obvious measures.
Current unemployment benefits last just 26 weeks in most states and
end up covering only a third of people who are laid off. Food stamps
are in even shabbier shape, with an allotment amounting to about $1
per meal. Nothing could be more stimulating than putting money in the
hands of those who will spend it quickly.
But you can't jump-start a car that lacks a working battery. We need
less titillating talk about "stimulus" and more commitment to some
fundamental repairs -- higher wages, a real safety net and a return to
progressive taxation among them. The challenge isn't just to prop up
stock prices but to rebuild an economy in which everyone shares the
good times -- and no one is consigned to a permanent recession.
http://www.washingtonpost.com/wp-dy.../02/01/AR2008020102828.html?hpid=opinionsbox1
