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Compiled By Marty Kich

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August 2012

[Click the links to pdf’s of the full articles.]

This month saw the release of a substantial policy paper prepared by Jacob S. Hacker and Nate Loewenthiel. Hacker is the Director of the Institution for Social and Policy Studies (ISPS), the Stanley B. Resor Professor of Political Science, and Senior Research Fellow in International and Area Studies at the MacMillan Center at Yale University. A third-year student at the Yale Law School, Loewenthiel sits on the Board of Directors of the New Leaders Council and on the Founders Board of PolicyMic.com. He blogs regularly for The Huffington Post and writes for citizenthink.net.

Titled Prosperity Economics: Building an Economy for All, the paper is divided into three parts. The first offers a critique of “austerity economics,” specifically challenging its five core myths: (1) government spending and deficits are our primary economic problem; (2) cutting the taxes on the most affluent Americans is the most effective way to spur economic growth; (3) our high degree of social mobility mitigates any problems that might be associated with income inequality; (4) the economy should be managed by market forces, not by governmental controls; and (5) the wealthy create wealth and are solely responsible for the creation of their own wealth.

The second part of the paper offers alternatives to these myths, defining the three core principles of prosperity economics: (1) innovation-led growth grounded in job creation, public investment, and broad opportunity; (2) security for workers and their families, the environment, and government finances; and (3) promotion of democratic participation, inclusivity, and accountability—in Washington and in the workplace.

In the third part of the paper, these core principles are extended to specific policy proposals, organized around three “pillars”: growth, security, and democracy.

To promote growth, the authors suggest that jobs be created by investing in infrastructure and by restoring communities, by ensuring U.S. global competitiveness, and by enforcing full-employment monetary policy. Likewise, they suggest that innovation be fostered through education, through a continued emphasis on cutting-edge technology and entrepreneurship, and through growth in the advanced manufacturing sector. Lastly, they suggest that opportunity be expanded and inclusivity be promoted through immigration policy, through enhanced social mobility, and through rising wages and job quality.

The authors assert that economic security depends on secure healthcare, retirement, and personal households; that environmental security depends on secure climate policies, natural resource management, and sustainable global development; and that fiscal security depends on a broad and secure tax base, other secure revenue sources, and secure savings.

Finally, the authors argue that government policy must be freed from narrow corporate interests—in particular, the influence of the banking industry—and the influence of lobbyists and campaign donors. It must be tied, instead, to consumer protection, to collective bargaining by workers, and to the protection of voting rights.

(The full text is available through the earlier link, and I have quoted liberally from the executive summary and table of contents.)

Writing for Cry Wolf, Colin Gordon and Donald Cohen do not use the terms “austerity economics” and “prosperity economics.” But in their article “Do America’s Corporations Care How Much American Workers Earn?,” they first provide an historical overview of the relation between economic growth and wage growth and then an explanation of why the inversion of this historical relationship over the last three decades, which has driven steep, short-term growth in corporate profits, is ultimately unsustainable in any broader economic sense.

Gordon and Cohen remind us that during the Great Depression, economists, government leaders, and business owners all acknowledged that what might have been just another economic downturn became a catastrophic economic collapse because wages had remained too flat during the “boom” of the 1920s to sustain meaningful economic growth after the “crash” and the “panic” erased the “paper profits” of unregulated financial speculation.  Therefore, over the next four decades, there was a truly concerted effort to insure that the wages paid to American workers remained sufficient to sustain the growth in consumer spending on which America’s extended and unprecedented period of post-war prosperity was based.

But, in the 1970s, America’s economic dominance began to be challenged by Europe and Japan, which had spent a quarter-century rebuilding the economic infrastructure that the World War had destroyed, and by postcolonial nations, which were finally establishing industrial bases that would allow them to exploit the natural resources that they had previously provided to Western industries at very low cost and to develop both domestic and export markets for their own value-added goods. As a result, American corporate earnings began to be squeezed.

During the “Rust Belt” period, American corporate leaders abandoned the principle that higher wages were the main driver of economic growth and, instead, adopted the notion that the wages paid to American workers could remain stagnant if the cost of consumer goods could be driven lower by increasingly outsourcing their production to the expanding, very low-wage industrial workforces of developing nations. Gradually, this notion evolved into an acceptance of the erosion of American wages as most low-skilled and semi-skilled production was shifted overseas. Because high-end manufacturing was at the same time becoming increasingly automated, the mass of American industrial workers rather rapidly lost their leverage and then their jobs.

At the same time, American business leaders yoked their business models to right-wing political ideology, attacking unions for their supposed antagonism toward economic growth and thereby accelerating the changes that made the large industrial unions seem increasingly counterproductive and then anachronistic.

Not surprisingly, the last three decades have seen unprecedented increases in corporate profits and in income inequality. But, as wages begin very gradually to rise in developing nations, the erosion of the incomes of American workers will become more and more problematical, especially since nothing has replaced industrialization as a job-creating economic sector in which rising productivity can drive increases in wages and purchasing power.

If Ford’s assembly-line was emblematic of the American industrial economy, Walmart has been emblematic of the immediate post-industrial economy. The pervasive retailer provides low-cost imported merchandise to working-class Americans whose declining wages would otherwise have been more pointedly evident in the erosion of their standard of living. But, notably, Walmart’s employees are paid so poorly that they can barely afford its low-cost merchandise, and because most of the merchandise is imported, very few Americans who shop at the retailer are employed by companies that provide its merchandise.

Henry Ford was no friend of the working man, but he recognized the wisdom of paying his workers well enough that they could afford one of the cars that they were making. Gordon and Cohen cite a number of statements by American corporate leaders that suggest that the unsustainability of the Walmart model is becoming more widely, if very gradually, acknowledged.

Ironically, because public-employee unions have become the largest unions in the country, the deficits faced by state governments because of the Great Recession have provided right-wing governors with a ready rationale for furloughing social workers, teachers, police, firefighters, and other civil-service workers. As a result, amid the continuing chorus of complaints about the size and cost of “big” government that has marked this electoral cycle, The Atlantic’s Jordan Weissman has reported that, data collected by the Federal Reserve shows that government employment has actually declined to its lowest level since 1968.

Despite—or perhaps because of-- the political assaults on unions that have resulted from the Great Recession, Jeffrey M. Jones reports that recent Gallup polling shows that 52% of Americans still hold positive perceptions of unions. Given that about half that percentage of American workers belong to unions in the slightly more than half of the states that have not passed right-to-work (union-busting) legislation, the polling results may reflect an increasing awareness of the impact of unions on the broader economy and on the relative affluence of individual workers.