02 May 12
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Dow Jones Industrial Average hit 13,338 Tuesday, its highest since
December, 2007. The S&P 500 added 16 points. Wall Street will
remember May 1 as a great day.
But most of these gains are going to the richest 10
percent of Americans who own 90 percent of the shares traded on Wall
Street. And the lion's share of the gains are going to the wealthiest
1 percent.
Shares are up because corporate profits are up, and
profits are up largely because companies have figured out how to do
more with less.
Payrolls used to account for almost 70 percent of the
typical company's costs. But one of the most striking legacies of the
Great Recession has been the decline of full-time employment - as
companies have substituted software or outsourced jobs abroad
(courtesy of the Internet, making outsourcing more efficient than
ever), or shifted them to contract workers also linked via Internet
and software.
That's why most of the gains from the productivity
revolution are going to the owners of capital, while typical workers
are either unemployed or underemployed, or else getting wages and
benefits whose real value continues to drop. The portion of total
income going to capital rather than labor is the highest since the
1920s.
Increasingly, the world belongs to those collecting capital gains.
They're the ones who demanded and got massive tax cuts
in 2001 and 2003, on the false promise that the gains would "trickle
down" to everyone else in the form of more jobs and better wages.
They're now advocating austerity economics, on the
false basis that cuts in public spending - including education,
infrastructure, and safety nets - will generate more "confidence" and
"certainty" among lenders and investors, and also lead to more jobs
and better wages.
None of this is sustainable, economically or socially.
It's not sustainable economically because it has
resulted in chronically inadequate demand for goods and services.
That's meant anemic growth punctuated by recessions. Without a larger
share of the economic gains, the vast middle class doesn't have the
purchasing power to buy the goods and services an ever-more
productive economy can generate.
It's not sustainable socially because it has resulted in rising frustration over the inability of most people to get ahead.
Austerity economics in Europe is fanning the flames,
as public budgets are slashed on the false crucible of fiscal
responsibility. In the United States, an anemic recovery and plunging
home prices are taking a toll: a large portion of the public
believes the game is rigged, and no longer trusts that the major
institutions of society - big business, Wall Street, or government -
are on their side. In Europe and America, 30 to 50 percent of recent
college graduates are unemployed or underemployed.
Inequality is also widening in China, where the
scandal surrounding Bo Xilai and his family is serving as a public
morality tale about great wealth and official corruption. Students in
Chile are in revolt over soaring tuition and other perceived social
injustices.
It's a combustible concoction wherever it occurs:
Increasing productivity, widening inequality, and rising unemployment
create tinder-box societies.
Public anger and frustration can ignite in two very
different ways. One is toward reforms that more broadly share the
productivity gains.
The other is toward demagogues that turn people against one another.
Demagogues use fear and frustration to advance
themselves and their own narrow political agendas - scapegoating
immigrants, foreigners, ethnic minorities, labor unions, government
workers, the poor, the rich, and "enemies within" such as communists,
terrorists, or other conspirators.
Be warned. The demagogues already are on the loose. In
Europe, fringe parties on the right and left are gaining ground. In
America, politics has turned especially caustic and polarized. (The
right is even accusing people it doesn't like of being communists.)
No one knows where China is heading, but reformers and ideologues are
battling some of it out in public.
May 1 may be a good day for the Dow Jones Industrial
Average, but the future depends on the job prospects and wages of the
average worker.
Robert Reich is Chancellor's Professor of Public
Policy at the University of California at Berkeley. He has served in
three national administrations, most recently as secretary of labor
under President Bill Clinton. He has written thirteen books, including
"Locked in the Cabinet," "Reason," "Supercapitalism," "Aftershock," and
his latest e-book, "Beyond Outrage." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
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