After the Waste Land

Democratic Economics for the Year 2000

Samuel Bowles, David M. Gordon, Thomas E. Weisskopf

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317477402
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

This critique of Reaganomics attempts to provide alternatives to both the supply experiments of the 1980s and neoliberal strategies of austerity. It presents arguments for economic democracy with a worker-oriented blueprint for improving productivity, growth, employment and economic justice.

II

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Anatomy of a Crisis

4

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The Arithmetic of Economic Decline

Things are going much better in the economy than most people realize. It’s our attitude that is doing poorly.

—G. William Miller, Chair, Federal Reserve Board, 1978¹

The history of the U.S. economy from the late 1940s to the late 1970s encompasses two fundamentally different periods. The first, beginning shortly after the war and continuing through the mid-1960s, was one of boom conditions for most people in the United States. The second, stretching from the mid-1960s to the end of the 1970s, was one of deteriorating economic performance and deepening crisis.

To be sure, the initial period of economic expansion was not without some major flaws. Many people continued to have difficulty finding a steady job, even during the times of relatively full employment. Income inequalities persisted— between rich and poor, men and women, whites and blacks—and some even widened. Working conditions were often unhealthy, public services were often inadequate, and economic priorities were often inappropriate to meet people’s real needs. As John Kenneth Galbraith argued in the late 1950s, the “affluent society” was far from perfect; Michael Harrington’s The Other America was the flip side of postwar prosperity.²

Yet, in spite of these continuing problems, there was a real sense in which the economy was working. Total output and total income were growing so rapidly that most people in the United States could realistically anticipate a brighter economic future. The expanding pie helped moderate some of the tensions inher-ent in an unequal society and cushioned the blows of misplaced priorities and irrational economic allocations.

Those years of optimism now seem like the distant and receding past. After the mid-1960s economic welfare began to stagnate or decline for large proportions of the U.S. labor force and U.S. households. Economic anxiety spread like the plague, infecting more and more Americans, from Wall Street to Main Street. “It would be necessary to go back to the 1930s and the Great Depression,” pollster Daniel Yankelovich concluded in 1979, “to find a peacetime issue that has had the country so concerned and so distraught.”³

How can we best explain the extent of this reversal of U.S. economic fortunes? In the remainder of this chapter we will present and interpret statistical evidence that will help us answer two important questions: First, when did the postwar economic boom turn into economic crisis? And second, how deep did the crisis get by the late 1970s?

From Economic Boom to Economic Crisis

Inflation and unemployment are the symptoms of economic deterioration to which economists and the media have often devoted most of their attention. In order to clarify the timing of the decline in these familiar terms, we present the basic data on inflation and unemployment in Figure 4.1.

The top panel plots the annual rate of inflation from 1948 to 1979, using annual percentage changes in the consumer price index as a measure of price inflation. From the early 1950s through 1965, the annual rate of price increase fluctuated around an average of 2 percent. It showed neither a noticeable tendency to rise nor sharp fluctuations; indeed, the most striking feature of the first part of the graph is the growing stability of a relatively low inflation rate through the early 1960s.

From the mid-1960s to the late 1970s, however, the rate of inflation increased dramatically, climbing to almost 12 percent in 1979. Each of its peaks was higher than the previous business-cycle peak, and each of the troughs was higher than the rate of inflation in the previous trough. The acceleration of inflation clearly began well before the Organization of Petroleum Exporting Countries (OPEC) got its act together in 1973.

The bottom panel of Figure 4.1 provides official government data on the rate of unemployment. Unemployment is itself subject to sharp cyclical fluctuations, but it is evident from the graph that joblessness began to move significantly upward from the late 1960s through the 1970s. It was lower in 1979 than in 1975 only because 1975 was a cyclical trough year and 1979 a cyclical peak year; at the following cyclical trough (1982), the unemployment rate climbed to almost 10 percent.⁴ The data for 1948 to 1965, by contrast, show no obvious trend. After the mid-1960s, as with inflation, each unemployment peak was higher than the previous one, and each unemployment trough was higher than the previous one.

Dismal though they are, these data on unemployment disguise much of the problem during this period. Women, minority workers, and teenagers all experience higher than average rates of unemployment; their relative disadvantages in the labor market, by this measure, intensified throughout the years of economic decline. Equally important, the official overall unemployment rate excludes many in the labor force who nonetheless have serious employment problems— those who have grown discouraged and abandoned their search for work and those who want full-time work but must settle for part-time jobs. The official data further understate the extent of joblessness as well, because they measure unemployment only at a particular moment. In 1979, for example, unemployment was recorded at 6.1 million persons, but 18.5 million were unemployed at some time or another during the year.⁵

Figure 4.1
Symptoms of Stagflation I:
(a) Inflation
Average annual percent change in Consumer Price Index, 1948–79

(b) Unemployment
Average annual percent of civilian labor force, 1948–79

Sources: Annual percent change in consumer price index, all items, Economic Report of the President, 1990, Table B-62. Civilian unemployment rate, average annual rate, Economic Report of the President, 1990, Table B-32.

Those who were able to find and hold jobs were more fortunate, of course, but they hardly escaped the effects of economic decline. Roughly 90 percent of U.S. households depend on wage and salary income for their survival.⁶ For this vast majority, two principal trends determine the level of income available to their households: take-home pay per hour of work and the total hours worked to support household members. What happened to hourly earnings, and to hours worked, during the boom and crisis periods?

Figure 4.2 presents some basic data on both earnings and hours for the postwar period. Viewed together, the two panels provide a quick summary of the fate of working people in the United States.

The top panel presents data on the average production worker’s take-home pay—or real spendable hourly earnings.⁷ Production workers comprised 81.3 percent of total employment in 1979 and represent that group in the labor force that is most clearly dependent on wage and salary income.⁸ Spendable hourly earnings measure the average worker’s hourly wage and/or salary income plus other compensation—for example, medical benefits—minus personal income and Social Security taxes. These earnings are expressed in constant (1977) dollars in order to adjust for the effects of inflation on the cost of living. The graph charts the level of average real hourly spendable earnings in the United States from 1948 to 1979.

The data show a clear pattern. The average worker’s real after-tax pay grew rapidly through the mid-1960s; its growth then slowed, with some fluctuation, until the early 1970s, and finally declined, with further fluctuation, through the rest of the 1970s. The average annual growth of real spendable earnings averaged roughly 2 percent from 1948 to 1966, slowed to roughly 1 percent between 1966 and 1973, and then dropped by roughly 1 percent from 1973 to 1979.⁹

The bottom panel presents Commerce Department data on average annual hours worked per capita by the U.S. population. This measure reflects the total amount of labor that U.S. households committed to the economy in order to support themselves and their dependents. The data on hours approximately mirror the top panel on earnings. Average hours per capita declined fairly steadily until the early 1960s—as workers and households were able to take advantage of rising wage and salary income. Average hours rose in the mid-1960s when real earnings growth began to slow. They have risen most rapidly since the mid-1970s as households have tried to stave off the squeeze of declining real earnings.¹⁰

This increase in average annual hours per capita reflects an increase in the number of household members working outside the home, and not an increase in average hours per week. Faced with stagnating and then declining real spendable earnings, additional family members, particularly married women, sought work. The percentage of the adult population working or looking for work outside the home—a figure that had been roughly constant over the postwar period—began to rise in the mid-1960s, climbing from 59 percent in 1966 to 64 percent in 1979.¹¹ This extra labor helped sustain total household earnings, making possible continued increases in household consumption levels. As the 1970s progressed, Business Week noted, it became more and more important to take into account “the sweat that goes into producing [household] income”; “Everybody is working harder to maintain their standard of living,” University of Massachusetts economist Leonard Rapping concluded, “but most of them are not making it.”¹²

Figure 4.2
Symptoms of Stagflation II:
(a) Real Spendable Hourly Earnings
Production workers’ (after-tax) hourly eranings in $1977, 1948–79

(b) Hours per Capita
Annual hours of work (excluding unpaid family labor) per capita, 1948–79

Sources: Real spendable hourly earnings ($1977), Thomas E. Weisskopf, “Use of hourly earnings proposed to revive spendable earnings series,” Monthly Labor Review, November 1984, pp. 38–43, and annual updates by authors. Ratio of total hours worked to total population, National Income and Product Accounts, 6.11:1; Current Population Reports, Series P-25.

Figure 4.2, in short, tells a familiar story. From the mid-1960s to the late 1970s, through both the stagnation in real spendable earnings and the added hours necessary to compensate for that stagnation, working households increasingly felt the pinch. There was more to the crisis, of course, than the symptomatic erosion of real earnings and leisure time, much less the acceleration of inflation and rising unemployment. No statistical measures can adequately reflect the real personal impact of heightened insecurity, personal anxiety, and social tension that result from economic decline. Nor can our data series begin to capture the loss in popular power resulting from continuing erosions in labor union vitality and leverage, declining citizen support from social programs and personal entitlements, or the spreading power of corporate political action committees (PACs) and busines...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Tables
• Figures
• Preface
• Acknowledgments
• I. Economics as Politics
• II. Anatomy of a Crisis
• III. The Debacle of Right-Wing Economics
• IV. The Promise of Democratic Economics
• Frequently Cited References
• Notes
• Index