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From ‘Great Prosperity’ (1947-1977) to _This_?

Obviously the U.S. economy is sputtering. Obviously II, our economic problems are not a short-term thing, but part of a trend since the late 1970s of bubble booms, recessions, and good-job-free recoveries. Dean Baker tells us today what is happening now:

Very Little Positive News in Latest Jobs Report

The unemployment rate climbed back up to 9.1 percent in May, as the rate of private-sector job growth slowed to just 83,000, according to the latest Bureau of Labor Statistics employment report. The prior two months data were also revised downward, lowering the average job growth for the last three months to 160,000, approximately 70,000 more than what is needed to keep pace with the growth of the labor force.

The weakness in the private sector goes along with a government sector that lost 29,000 jobs in May and has lost an average of 24,300 jobs over the last three months. State and local governments will continue to make cutbacks, and there is a strong likelihood of further cuts in federal spending in the fiscal year beginning Oct. 1. Without new stimulus, the unemployment rate may continue to creep upward.

But of course III, there will be no new stimulus, because the Republicans and President Obama don’t want one. Apparently they are insane, though admittedly the madness is worldwide: Greece to impose deeper austerity for new rescue. How austerity generates recovery and not the opposite is a question for madmen and mainstream economists.

But the madness of our economists is only a symptom of a deeper disease that has caused anemic or no income growth since the 1970s for everyone except those at the top. Robert Reich was very helpful on the big picture this week, in The Truth About the American Economy and The Truth About the American Economy (II). Reich sums up the story as follows:

During the Great Prosperity of 1947-1977, the basic bargain had ensured that the pay of American workers coincided with their output. In effect, the vast middle class received an increasing share of the benefits of economic growth. But after that point, the two lines began to diverge: Output per hour — a measure of productivity — continued to rise. But real hourly compensation was left in the dust. …

Starting more than three decades ago, trade and technology began driving a wedge between the earnings of people at the top and everyone else. The pay of well-connected graduates of prestigious colleges and MBA programs has soared. But the pay and benefits of most other workers has either flattened or dropped. And the ensuing division has also made most middle-class American families less economically secure.

Government could have enforced the basic bargain. But it did the opposite. It slashed public goods and investments — whacking school budgets, increasing the cost of public higher education, reducing job training, cutting public transportation and allowing bridges, ports and highways to corrode.

Reich goes on to describe the attack on the ‘safety net’, a 1980s phrase that in itself lowballs what government of the people should be doing for the people. But Why? Why did government do the opposite? Why does it do the opposite now, despite the predictably disastrous results from austerity programs?

Reich has elsewhere talked about the buying of Congress and the increasing obedience of the Democratic Party to, in a phrase, Wall Street. But he doesn’t discuss that ‘why’ in those two new posts. In The Truth About The Middle Class, Dave Cohen calls out Reich:

Think for a moment. What’s missing in Reich’s explanation? Why was the government so mean-spirited? Why would the government sacrifice the middle class at the altar of the rich?

And of course the answer is political corruption, which resulted in the financialization of the American economy. Corruption is built right into the long, expensive election process (campaign contributons, aka bribes) and the law-making process (armies of lobbyists writing legislation in the Congress).

Because Reich does not state the cause of our problems, he can’t tell us how to solve them, stating merely …

The fundamental economic challenge ahead is to restore the vast American middle class. … That requires resurrecting the basic bargain linking wages to overall gains, and providing the middle class a share of economic gains sufficient to allow them to purchase more of what the economy can produce.

But all signs point in the opposite direction for Reich’s Democratic Party, and things are worse with the Republicans. Cohen writes:

Many call[] what we [have] the FIRE economy (finance, insurance & real estate). And if you’ve got a FIRE economy, and middle class Americans are being squeezed, a housing bubble makes all the sense in the world. Those in finance and real estate prosper, while those buying houses are led to believe they are acquiring wealth (in home equity) for the first time in three decades. Then the bubble pops, and what does the government do? It bails out the too-big-to-fail banks, who effectively own the Congress, and run economic policy at the Treasury and in the White House.

Rational and unbought economists know what to do, but we get the policy that’s paid for. The solution is to end the ownership of Congress and the White House by the economic and financial elite. Of course IV, admittedly not unlike Reich, I don’t know how we get there.

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