No, you can’t really make this stuff up: Orthodox economists continue to tell us that the reason for ongoing economic stagnation is that wages and unemployment benefits are too high. Yes, that’s right. You haven’t suffered enough.
Given that orthodox economics (or “neoclassical” or Chicago School, if you prefer alternate labels) exists as a propaganda tool to justify all manner of capitalist excesses and inequality, it’s not actually surprising that such snake oil continues to be peddled with a straight face. Never mind the years of stagnant wages, the decades of wages trailing productivity ever further, housing costs rising far more sharply than inflation, and the increased use of debt just to stay afloat.
If you would just work for less, all would be well. The basic reason for that belief is an admission that, in a capitalist economy, wages are a commodity. (That really means human beings are commodities, but we can only expect so much truth here.) This underlying belief is succinctly summarized by this commentary offered by the conservative Library of Economics and Liberty:
“Unemployment is just a labor surplus; since wages are the price of labor, the fundamental cause of unemployment has to be excessive wages.”
But capitalism is supposed to be a perfect system, always moving toward equilibrium, according to capitalist dogma. So there should be no unemployment. There obviously is, so what’s the culprit? You’ve likely already guessed – it’s the government’s fault. The self-proclaimed capitalist tool, Forbes magazine, claims that wages aren’t increasing because “pent-up wage cuts didn’t happen” following the 2008 global economic meltdown and so poor downtrodden corporations have no choice but to keep wages from rising to make up for those cuts that should have been imposed. If only government policies wouldn’t interfere with the magic of the market, all would be well, Forbes asserts:
“To summarize, government regulation and policy are very much linked to the enduring presence of wage stickiness and slow wage growth since the Great Recession.”
There’s ideology, and then there’s the real world: You can even win a Nobel Prize for these beliefs. The Nobel Prize for economics isn’t actually a Nobel Prize (officially, it is an add-on called the “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”), but, still, it’s widely considered one and it’s the highest honor an economist can receive. It almost invariably goes to a conservative economist who upholds orthodox ideology. One recent recipient is Thomas Sargent. Although he formally received his prize for other work, Dr. Sargent is known for writings in which he argues that unemployment benefits are too generous, and if such benefits were reduced, there would be “incentive” for people to go back to work.
Here in the real world, there are many more candidates than jobs that pay a living wage, and unemployment benefits are insufficient to live on. Depending on the state, unemployment benefits amount to 30 to 50 percent of lost wages in the United States – hardly enough to live comfortably on, and it’s cut off after 26 weeks. British benefits are capped at £73.10, and it can be less if you have savings you have yet to tap. Nobody is living large on that amount.
Continental European unemployment coverage is better, and, interestingly, some of the countries with the highest levels of benefits, such as Denmark, Norway and Finland, have among the lowest unemployment rates, although those benefits have eroded in recent years. Nonetheless, social safety nets in general lead to unemployment, Dr. Sargent believes. In an interview with Swedish Television, he said workers ought to be prepared for having low unemployment compensation in order to get the right incentives to search for jobs.
“Sargent, with Swedish economist Lars Ljungqvist, found that high, long-lasting unemployment benefits in Europe have caused many European workers who lost their jobs to stay unemployed for years and, thereby, erode their human capital. This makes them less employable in the long run. The fact that the US government extended unemployment benefits in many US states to 99 weeks, said Sargent in the 2010 interview … ‘fills me with dread.’ “
Cutting wages won’t be a panacea: Falling wages might provide a short-term boost to corporate profits, but the reduced purchasing power of working people would soon cause people to buy less. That is disastrous in advanced capitalist countries, where consumer spending generally accounts for anywhere from 60 to 70 percent of gross domestic product.
Lars Syll, a heterodox economist and self-described critic of market fundamentalism writing on the Real-World Economics Review Blog, put this plainly:
“The aggregate effects of wage cuts would, as shown by Keynes, be catastrophical. They would start a cumulative spiral of lower prices that would make the real debts of individuals and firms increase since the nominal debts wouldn’t be affected by the general price and wage decrease. In an economy that more and more has come to rest on increased debt and borrowing this would be the entrance-gate to a debt deflation crises with decreasing investments and higher unemployment. In short, it would make depression knock on the door.”
Falling wages were a reality during the Great Depression, but that didn’t help matters. By 1933 in the United States, manufacturing wages fell 34 percent and unemployment rose to about 25 percent. The Canadian economy contracted by more than 40 percentand unemployment reached 30 percent in 1933. Collapses in wages did not bring better times; only the massive government spending to wage World War II put an end to the Depression. Moreover, already existing low wages come at a high cost. A 2015 study by the researchers at the University of California Berkeley Center for Labor Research and Education found that public benefits given to people who have jobs but can’t live on their meager wages cost the public more than $150 billion annually in the United States – more than half of total public-assistance spending by federal and state governments. Wal-Mart alone costs taxpayers an estimated $6 billion per year subsidizing the retailer’s low pay and paltry benefits at the same time it pays out similar amounts in dividends, half of which go to the Walton family.
Working harder for less: As all of you doing the jobs of two or three people at your place of employment have undoubtedly noticed, more work is not being rewarded with more pay. The average US household earns about $18,000 less than it would had wages kept pace with productivity gains, and the average Canadian household is short at least $10,000 per year because of pay lagging productivity gains. Workers across Europe, including in Britain, Germany and Spain, have also seen pay lag productivity.
The upward flow of money not only causes more inequality but further concentrates power in the hands of plutocrats. As David Ruccio summarized in a separate Real-World Economics Review Blog post:
“If you put the two trends together-increased individual income inequality and increased corporate savings-what we’re witnessing then is increasing private control over the social surplus. Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want-or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares.
And proposals to decrease tax rates for wealthy individuals and corporations will only increase that private control.”