The American Model
Why, tell me, is economic growth so wonderful if it’s being enjoyed by such a small proportion of the people of this country – and if the burdens of growth (in terms of growing job insecurity, loss of corporate health-care benefits, lack of health insurance altogether, wage declines for the majority of hourly workers, loss of local communities and local retailers (look at the devastation created by Wal-Mart –are being borne by so many?
Yesterday I found myself in yet another debate with some right-wingers who claimed (as they always do) that Europeans and the Japanese have it far worse than us. Growth is slower in these countries, they say over and over again, and unemployment is higher. The “American system,” with our highly-flexible labor market (meaning anyone can be fired for any or no reason, and can lose large portion of salary and benefits any time)is far more efficient. Well, these right-wingers certainly are correct that growth is slower and unemployment is higher there than here. But people have more job security there. They also have health care. If they’re unemployed, they have far better benefits than unemployed workers here. And inequality is far less in these countries than it is in the United States.
In other words, there’s something of a tradeoff. The “American system” is at the extreme end of a set of social choices that other people in many other post-industrial nations are making differently than we are. All other things equal, it’s great to have a growing economy. But, as I’ve noted before, during the past five years, although productivity gains in the United States have been impressive (24 percent), real wages are going nowhere. The real median wage is still around $35,000, which is where it was in 2001. (One respondent to this blog continues to tell me that, if you measure compensation slightly differently, you’ll see that the real median wage is slightly up. I think his methodology is flawed, but that’s not the point. If the whole economy is 24 percent more productive than it was five years ago, we could afford MUCH higher median wages and benefits. The lion’s share of the gains of these productivity increases have gone, however, only to people at the very top of the heap.)
So, to repeat: In the big tradeoff between, let’s call it “social tranquility” on the one hand, and economic dynamism on the other, what’s the great advantage of economic dynamism if so few people actually enjoy its fruits?
I’m reminded of a debate I used to have with Bob Rubin, who was Clinton’s Treasury Secretary. Bob is a delightful man, but his position in this debate was indicative of a different way of thinking than the way I normally proceed. The question I uysed to pose to him (in various ways) was this: Suppose the economy could be 25 percent larger, but almost all the gain from this increase would go only to the people at the top. No one would be worse off than before, in absolute terms, but only the people at the top would enjoy the fruits of the growth. Would we choose this nonetheless? He said absolutely. His reasoning was that whenever some people gain and no one else loses, the change is positive. That’s called, in economic jargon, a Pareto improvement.
But it leaves out the distributional reality. If those at the top gain all the benefits, then why should everyone else put in the extra effort to make it happen? Why should they endure the insecurities? And won’t most people who don’t enjoy the gains feel comparatively less well off than they were before? Feelings of well-being are, to some extent, relative. We used to talk about the poor as “disadvantaged.” That is, disadvantaged relative to the rest of society.