US Economy “Stuck in the Mud”

Robert Pollin: Last quarter of 2012 had zero growth, wages were lower, unemployment higher as stock market hit record highs.

Bio

Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst. He is the founding co-Director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include: A Measure of Fairness: the Economics of Living Wages and Minimum Wages in the United States, and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.

Transcript

Paul Jay, Senior Editor, TRNN: Welcome to The Real News Network. I’m Paul Jay in a very happy Baltimore.

And now join us for this week’s edition of The PERI Report with Bob Pollin, who joins us from the PERI institute in Amherst, Massachusetts.

Thanks for joining us again, Bob.

Robert Pollin, Codirector, Political Ecnomy Research Insititute: I’m very happy to be on, Paul.

Jay: So what do you got for us this week?

Pollin: Well, I think there were two really key statistics about the state of the economy that came out last week, and maybe an even more important one that came out the week before.

The two pieces of evidence that came out last week are showing us that the economy is stuck in the mud. Number one, the growth rate of GDP for the last three months of 2012 was zero. Actually, it was -0.1. So the idea that the economy is on a healthy growth trajectory is completely rejected by this evidence over the last quarter that there was no growth whatsoever. Keep in mind that this is 3.5 years, fully, after the recession, the 2007-2009 recession, officially ended. Three and a half years later, we’re still getting no growth.

Second, on the unemployment rate, the unemployment rate also was stuck. Again, actually, unemployment went up, official unemployment went up slightly from 7.8 to 7.9 percent in January 2013—still more evidence that the economy is stuck, that we are not getting out of the recession caused by the financial collapse of 2007, 2008. So that’s what happened just last week.

Now, what happened the week before? A much more longer term perspective on the economy, which is that the Labor Department reported that the rate of unionization, the percentage of workers in the economy that are members of union, has fallen to a 97-year low of 11.3 percent. Only 11.3 percent of workers are now in unions.

Now, this has been a long decline in terms of unionization rates, but the decline was accelerated greatly in 2011 and continuing in 2012. Well, why? Because of the vicious assault on unions that started in Wisconsin when Governor Scott Walker tried to break all the public-sector unions. It moved into Indiana when Indiana voted to become a so-called right-to-work state, which is that workers receive the benefits of union contracts without having to join the union. And now, in 2012, that same right-to-work abandonment happened in, of all places, Michigan.

So we know that there is this huge assault on working people, on their rights to organize, their rights to defend themselves, their rights to collectively bargain, is happening while the economy is still stuck in the aftermath of the Wall Street crash.

Now, I want to just put those two together for a second, because that relates to a theme that you, Paul, have been talking about for a long time and you and I have discussed. The economy is extremely fragile, and a big reason why it’s fragile is because of the huge increases in inequality that have gone on for a generation.

Why does inequality matter for the stability of an economy? We know inequality is of course bad in terms of fairness, that workers don’t get their share of the productivity they produce. That’s been going on for generations. On top of that, though, inequality leads to more instability because you don’t have workers with money in their pockets to buy things, so you don’t have sufficient demand in the economy to pull businesses back into new investments. And that is one of the big factors that is keeping the economy down.

So instead of addressing that by raising the minimum wage and by enabling unions to fight for workers to get better wages and benefits, we’re actually going in exactly the opposite direction. And in reflecting that, we see the economy stuck at no growth and rising unemployment 3.5 years after the recession ended.

Jay: So put that together with another number. On Friday, the New York Stock Exchange broke through 14,000 for the first time in five years. It’s the highest point in five years, at a time when these numbers you just described came out.

Pollin: Well, what we’ve known for a long time is that the behavior of the financial market is almost completely decoupled from the behavior of how everyday people relate to the economy. There hasn’t been any relation for a long, long time. The only relation that happened during the bubble years was that, you know, these slick financiers got people to take on mortgages they couldn’t afford. They earned a lot of fees. We had a financial bubble that has now crashed and that people are still suffering the consequences.

But beyond that, the role of the financial markets to induce spending, investment, productive-activity jobs is long gone. That hasn’t been happening now, certainly since the recession, and even before the recession. We still don’t have money going into small businesses at affordable rates so that small businesses can expand. That’s not even on the agenda, even though you and I have talked about it umpteen times. That is not on the political agenda of the Democrats, the Republicans, or the Fed. And meanwhile, yes, the stock market is soaring while workers’ living standards are deteriorating.

Jay: I mean, maybe there’s a connection in that sense, is that the individual companies that are doing well within this market, even if it’s depressed, are going to do even better if wages stay low. So maybe there’s that kind of correlation when people see these numbers.

Pollin: Well, yes. There’s this long tension as to what makes a capitalist economy function, in terms of profitability for business. One way is, well, you keep workers down as much as possible, and you squeeze out the biggest share of the overall pie for profits. That’s one way. The other way is, if workers have these living standards and wages, they’re going to have more money in their pockets, and they’re going to buy more, and that the business will benefit from demand. So one we could call a profit-led story about growth, and the other one we could call a wage-led story or a egalitarian story about what can make an economy grow.

There are ways in which either story can work and which—that is, work in terms of profitability, but there’s only one story that will work in terms of benefiting workers, obviously not to suppress workers, not to attack workers, not to destroy unions, but to allow the economy to grow on a foundation of rising wages, decent unions, rights for workers. And we are not heading in that direction now.

Jay: Yeah. I’ve said before that wages is the five letter word you cannot hear out of the mouth of any major political party.

Pollin: That has not been part of the story. I mean, there are people that are fighting now to get the minimum wage raised around $10 an hour, but we can’t get even the mainstream Democrats to take that idea seriously, even though the minimum wage today is well below what it was in the 1960s after correcting for inflation. The minimum wage in 1968 was almost close to $11 an hour, correcting for inflation, and now it’s $7.25.

Jay: Thanks for joining us, Bob.

Pollin: Thank you very much for having me.

Jay: And thanks for joining us on The Real News Network.