Perk up the economy

By Hoyt Wheeler
Columbia, SC

Why Occupy Columbia? In short, because trickle- down economics has it all wrong. Instead of an economic system in which wealth drips down from the wealthy to everyone else, we should have one in which wealth in the lower reaches of the economy percolates up to enrich the entire economy. Increased demand for goods from millions of American consumers can come only from increased consumer confidence. Increased confidence can come only from higher wages, greater security in old age, and a lack of fear of financial devastation from health problems.

It is the failure of trickle-down economics, along with the failure to sufficiently regulate the financial manipulations of Wall Street, that have prompted the Occupy movement.

The problems in the American economy are not difficult to see. The average American worker’s pay, after inflation, has been essentially flat since 1980, in spite of the economy doubling in size. The unemployment rate hangs stubbornly high at around 9%. The national poverty rate in 2010 was 15.3%, up from 14.3% in 2009, and 46.2 million Americans were living in poverty, up from 42.9 million. Families with young children have a 37% poverty rate, the highest number on record.

In contrast to the situation of the vast majority of Americans, the wealthiest among us are doing quite well. The wealthy are richer than ever, taking home the largest slice of wealth and income in the last 75 years (over 40%), and paying the lowest rate of taxes in 30 years. CEO salaries went up an average of 23% between 2009 and 2010, compared to an increase of 0.5% for the average employee. It is clear that the rich are getting richer. Wealth has become highly concentrated. What is especially offensive is that the fat cat denizens of Wall Street, whose irresponsible behavior is chiefly responsible for a massive financial crisis, have been bailed out with our tax money. For more facts underlying the current protests, see businessinsider.com.

So, what is to be done? The answer of the Republicans and conservative economists is to let the market work its magic. The fact that the market often produces disastrous results for the majority of our citizens is of no consequence, since it is believed with religious fervor that any attempt to interfere with its sacred “invisible hand” will only make matters worse. The historical record reveals, however, that unfettered and unregulated markets have a disagreeable tendency to have periodic crises that produce great suffering by the general public.

Assuming that we can adopt policies to alleviate the unfortunate effects of our economic system, what might these policies be? Obviously, it would help to increase the demand for labor. But labor demand is derived from the demand for its products. To achieve greater demand for products means putting greater financial resources into the hands of consumers, and their having willingness to spend them. Cutting taxes is always a popular method of doing this, but it involves cutting services that are more needed in times of economic distress, and are also needed to have long term prosperity. Cuts in education are a classic example of this.

Fortunately, the money is available. The huge hoards of cash being held by U.S. companies need to be placed in circulation for the economy to recover. There is currently a record $1 trillion squirreled away by corporations. If this large stash of funds were put in circulation, especially in the form of wages, it would stimulate the economy as well as make for better lives for millions of workers.

During the Great Depression the U.S. government adopted a number of policies that had the purpose of increasing demand for products and therefore increasing the demand for labor. In the National Labor Relations Act of 1935, Congress declared that: “The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association… tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry… It is hereby declared to be the policy of the United States to…encourage the practice and procedure of collective bargaining….” Unionized workers earn higher wages, have better health insurance and better pensions. Yet, this purpose has been frustrated in recent years by the lack of teeth in the law and the inability to strengthen it to respond to modern conditions. To the contrary, at present the National Labor Relations Board, which administers this law, is under vigorous attack by the political servants of American capital.

The enormous political power of Wall Street prevented the adoption of sensible reforms in the financial system, such as the “Volker Plan” that would have separated traditional banking and speculative financial activity. This should be changed. There are a number of changes in the tax code that would make for a more equitable system as well as produce needed revenue. A small tax on financial transactions is only one of these.

It should not be surprising that on New York’s Wall Street, and in Columbia, and a number of cities across the country, Americans are taking to the streets. The people are finding their voice.

Hoyt Wheeler is Distinguished Professor of Management Emeritus, Moore School of Business, University of South Carolina. His publications include The Future of the American Labor Movement and Industrial Conflict: An Integrative Theory. He is a Co-Chair of the SC Progressive Network. The opinions expressed here are his own and do not necessarily reflect the views of the Moore School of Business, the University of South Carolina or the SC Progressive Network.

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