Class War in America: the Book

Economic absurdities that
Democrats must expose:


...because it's wrong to penalize success and hard work.


...therefore, we should eliminate the capital gains tax.


...After all, they came from, and understand, business.


...even though it is based on pitting the worlds' workers against each other.


...union bosses are only out for themselves.


...and the more the rich have, the more will trickle down to everyone else.


...Democrats are communists, or at least, socialists at heart.


...so when we tax wealthy investors, we lose jobs.


...so investors, not workers, create wealth.


...so we should give them all the tax breaks possible.


...Democrats just want to tax and spend today.


General Issues:

...check out this 2-minute video.


...It's a mountain, and a terrible defense of globalization.


...for those of Indonesia, Mexico, China and India.


...and how not to do it again.


...and the "crisis" is just a ploy by those who want to destroy it.


...Republicans' most important propaganda technique.


...and get the media on your side




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1.

Traditional Conservatism:

     To Keep Wages Low,

    Quietly Manipulate the Prime

Conservatives pay more attention to the status of working-class wages than to any other economic variable. They know that wage increases reduce profits and, as a result, slow down the accumulation of wealth by corporate executives, business owners and investors.

Therefore, whenever workers become scarcer and start making more money, conservatives demand that their political representatives in Washington do something to stop the “free” market from working as it is supposed to. Their favorite strategy prior to 1996 was to keep the unemployment rate at least 6% or above.

So, as prudence would dictate, whenever it looked like wages might be about to go up, conservatives have traditionally

§         raised the prime interest rate, which

§         made it more expensive for business owners to borrow money, which

§         slowed the growth of the economy, which

§         created less demand for workers, which

§         made workers compete more viciously with each other for jobs, which

§         allowed the existing business owners to continue paying low wages to their workers—the ones who were making them rich.

This strategy of class warfare is still in use. In fact, many modern conservatives continue to speak of it with the reverence typically reserved for cherished traditions. Those who think that the term “class warfare” sounds too offensive should read what reputable, mainstream conservative publications have to say about the wages of working Americans.

Ugly versus Beautiful Wages

Forbes made it quite clear how investors view the possibility that workers might start to make higher incomes. Under the headline, “Wage Inflation Raises Its Ugly Head,” it spread the alarm that

…the U.S. labor market has already tightened to the point where some wage inflation is sure to follow…. Increasingly, companies are giving hiring bonuses to attract skilled workers. This has a one-time impact and avoids raising actual wage rates.1 

When wages go up, conservatives never admit that workers are getting a fairer share of the prosperity of our country. Instead, they just scream “wage inflation,” which scares the hell out of everyone.

What’s especially maddening is that, according to conservative politicians, wages of workers are supposed to go up as they become more skilled and as the economy gets better. Yet, when this actually happens, conservative economists raise the battle cry that something is wrong (“ugly”) in the economy. Not only that, the wage increases for skilled workers that upset Forbes so much were only one-time bonuses—not regular, dependable income.

Forbes was somewhat relieved, however, because it went on to note that “Total employment cost inflation, as measured by the Employment Cost Index, is still declining. The reason for this is the drop in benefit cost inflation, especially for health care.”2 Remember: Republican Steve Forbes, editor-in-chief of Forbes, wanted to be president, and his magazine considers any increase in workers’ wages as “ugly.”

Now, compare the way Forbes viewed workers’ ugly wages with the way it viewed, just a year later, the incomes of some of America’s wealthiest people. Forbes is always at the forefront in beautifying greed and materialism. Under the headline “America’s Highest-Paid Bosses,” it reported that

A handful of chief executives were paid staggering amounts over the past five years. But the median five-year pay for 800 chief executives was just $6.9 million.”3  

Just $6.9 million. “Just” as in “only,” or  “a mere pittance” for the work that they do.

It doesn’t matter to conservatives that this was at a time when workers saw their incomes go up less than 3% and had their health benefits cut, the S&P 500 went up 38% and investors became richer to the tune of $1.8 trillion. The fact that workers’ pitifully low wages made it all possible is irrelevant. All that counts, as far as Forbes is concerned, is that the CEOs and the investors got incredibly richer.

Dual Blessings

Forbes is not alone in its one-sided sense of economic justice. In fact, it is standard operating procedure to manage the economy so that business booms and workers’ incomes remain low. In 1994, a Barron’s headline proclaimed “A Dual Blessing,” and quoted economist Ed Yardeni, who said that it’s the “best of all worlds: employment is booming; wage inflation remains low.”4

Two years later, Business Week announced that the dual blessing continued. Under the head, “Wall Street Is Cheering More Than Just the Yankees, The Economy Should Snap Back—Without Triggering Inflation,” it explained that

What really turned Wall Street on was a surprisingly modest increase in third-quarter labor costs. The employment cost index, a measure of hourly compensation costs for wages, salaries, and benefits, rose only 0.6% for all civilian workers last quarter. …the slowest quarterly pace in four years.5

This “dual blessing” and the source of Wall Street’s cheers is no act of God. It’s not the result of the movement of the stars or mere chance. Nor is it any mystery. In very deliberate ways traditional conservatives have blessed themselves by doing whatever it took to keep workers’ wages from going up, although by this time they had far more weapons than just manipulating the prime interest rate, as will be explained in later chapters.

NAIRU

In a headline, Fortune identified the foundation for this method of controlling wages as “The Jobs-Inflation Connection.” It explained that “the non-accelerating inflation rate of unemployment (also known as NAIRU)… is one of the building blocks of the economic universe.”6 This building block assumes that if unemployment drops below a certain rate,

…employers bid up wages for increasingly scarce workers, driving up costs and setting off inflation. For some time, most mainstream economists agreed that America’s NAIRU was probably about 6%…. Too-strong demand for workers begets inflation, so lenders demand higher interest rates to protect their returns, and central bankers tighten monetary policy, intentionally raising rates to slow the economy, which levers unemployment back up to its “natural” rate.7

   Note the cold-blooded nature of this kind of manipulation of working Americans’ lives:

§         The “jobs-inflation connection” means that when workers’ wages go up, the government must do something to stop them. On the other hand, wealthy conservatives shout from the rooftops that the government must never ever do anything to keep rich persons’ incomes from going up. Conservatives say that when their incomes go up, that’s just the result of the “free market forces.” What they never admit, however—and what is demonstrated in this book—is that the market isn’t free at all. Conservative politicians ruthlessly control those market forces.

§         The “natural” rate of unemployment is when it is high enough to make workers feel lucky just to have a job. They won’t risk being fired by asking for raises in pay. They will be more willing to accept intolerable working conditions and will not risk supporting a union drive.

§         It’s just a natural law of God: Workers should make just enough money to live and not consume excessively. Income increases are the natural right of corporate executives and investors. They, after all, are the hard-working, virtuous ones.

Fortune was a bit on the theoretical side in explaining all this.  Business Week was more descriptive in 1994 when it announced that “Wage Hikes Won’t Wake The Inflation Beast Just Yet,” and reassured its readers that

   Now as never before, labor costs are the key to inflation in this economic expansion…. But what makes this expansion different is the relentless downward pressure on labor costs coming from corporate restructuring, overseas competition, and efforts to boost productivity.…

   But it’s not just slower wage growth. Benefits, although they still are growing faster than wages, have slowed even more sharply.… The continuing slowdown in the growth of health- and workers’ compensation-insurance costs accounted for much of the first-quarter slowing in benefits.8

Be forewarned: When conservatives say “inflation beast,” they mean workers’ wages are going up. Although they occasionally express concern about increases in the consumer price index, durable goods orders, non-farm payrolls, commodity prices, wholesale prices, residential construction levels, industrial output and, rarely, the level of the stock market—their predominant preoccupation is always labor costs.

Conspiratorial Conservatives

Financial conservatives aren’t an official “conspiracy,” but they do conspire with each other. Consider Gene Epstein’s  “Open Letter to the Fed’s Boss” in Barron’s:

True, average hourly wages were up 0.5% in September.  But the tiny increase only makes up a small portion of the ground that workers have lost to even the modest rise in prices over the past several years.… Tell the world that inflation is a fantasy in the New Economy, that a hike in the Fed funds rate would only do harm.9    

This is an “open letter” that anyone can read, although most working persons never read Barron’s. Epstein went on to explain that world competition would keep prices from going up and that corporations could “Give some folks a 3% increase and lay off others, cutting their salaries by 100%.” Conclusion: wages are dead in the water; no need to raise the prime interest rate and risk cutting into corporate profits.

Discussions using the same kind of reasoning occur in country clubs, boardrooms, congressional hallways, and everywhere financial conservatives gather. In this letter, Epstein also

· pointed out that unemployment was at a seven-year low, thus raising fears that workers may start making more money,

· admitted that then-recent hourly wage increases made up only a small portion of the ground that workers had lost over the past several years,

· explained how conservatives have been able to keep wages down: cut staff and give a small raise to the remaining drudges,

· which, incidentally, also explains the number one method businesses use to increase productivity and, at the same time, cut wages: pressure fewer employees to work harder—for less money.

So what’s the conclusion? Hey, we’ve got the workforce totally beaten. Conservatives have successfully created a New World Economy in which workers have lost all power to negotiate for higher wages. The Fed doesn’t have to raise the prime interest rate to keep wages depressed.

Was Epstein right? Of course he was, because letters like his have been effective. Look at what the stock market did. Two months later, The Wall Street Journal asked the question, “Can Performance Withstand a Pit Stop?” and answered it with a resounding yes:

It was off to the races for the stock market again last year. Even with the take-the-money-and-run sell-off on News Year’s Eve, the Dow Jones Industrial Average climbed an impressive 26%. Added to the 33.5% gain of 1995, the Dow at year end is towering 68% above its level at the final bell of 1994.10

Still, despite the stock market’s phenomenal rise, there were nagging concerns that just wouldn’t go away. A month later, The Wall Street Journal issued the warning that “Greenspan Inches Toward Rate Increase”:

The Fed chairman also said he sees signs that the widespread fear over job security is abating. That is significant, he said, because worker insecurity has been restraining wages at a time of low unemployment and allowing the Fed to delay an increase in short-term rates.... [He hinted] that he is skeptical that corporate profits can benefit indefinitely from unusually slow growth in wage and benefits and ever-faster productivity growth.11

And that’s the story of the first half of the 1990s, and most of our recent economic history up to that point. So much for the good old days.

The New Economy

Since the mid-’90s things have changed. There is no longer a magic unemployment number, like 6%, to guide the hand of the Fed. Now, it’s almost anyone’s guess how much unemployment will be required to keep workers’ incomes from going up.

Although the magic number is still being debated, the worries are fundamentally the same and have continued through 1999. As Business Week put it, “A Fine Balance Should Keep This Expansion Aloft”:

The threat of wage inflation is easing despite tighter labor markets…. Wall Street knows all too well that low inflation is the butter on its bread. After growing fears that an overly strong economy would force the Federal Reserve to hike rates in order to preserve this Eden, the markets rejoiced over the seemingly benign employment report. The Dow soared ever closer toward 10,000…12

That was in March of 1999. In August, The Wall Street Journal reported that “Strength in Economy Continues,” yet “Signs of Inflation Are Scarce, Report by the Fed Shows.” It added:

“Widespread labor shortages persist in virtually every” one of the Fed’s 12 districts, “but there have been only scattered reports of an actual acceleration in wages,” the report said.13

The irony about reports such as this and the ones that preceded it is that, despite over 20 years of worker wage stagnation, record corporate profits and a record stock market, conservatives still consistently refer to inflation as “wage inflation.” It demonstrates how utterly preoccupied and paranoid America’s conservatives are about the possibility that workers may start to share in our country’s prosperity.

How Low Can It Go?

So, what will be the new magic NAIRU number to guide the judgment of conservative politicians? How low can the unemployment rate go without triggering inflation? As of the end of 1999 it was 4.1% and still wages were tame. Judging from a May, 1999 article in Business Week, it is possible that there is no longer any magic number. In “Sweatshop Reform: How to Solve the Standoff,” it described how difficult it is to put a floor under labor wages and conditions:

The debate over sweatshop codes of conduct shows just how tricky it is to put a floor under global labor standards, even in a single industry. The apparel business involves hundreds of thousands of factories in widely disparate economies. Exposés have alerted U.S. consumers to abuses, yet consumers’ desire for bargain goods means companies still face fierce competitive pressures. And it’s unclear what the economic toll would be if anti-sweatshop efforts lift prices….

   A living wage, the most costly demand, possesses the greatest risk. “The worry is that a living wage might cause some workers to lose their jobs,” says Dani Rodrik, an economist at Harvard University.14

This is the “new world economy” that conservative politicians are so proud of: a world in which American laborers must compete with workers who can’t demand a “living wage” without fear of losing their jobs. Any country that puts a floor under wages or working conditions will lose those jobs, because investors will put their money elsewhere. It’s that simple.

Ironically, a following story in this same Business Week issue, “Catering to the Near-Wealthy,” described how difficult it can be for newly rich investors to get decent financial advice:

If the bull market, stock options, an inheritance, or plain old thrift has transformed you from an average investor into a millionaire, you probably need to do more with your money than just stick it in mutual funds. Incredible as it seems, however, $1 million no longer gives you entree into many of the most exclusive trust companies and private banks that cater to the very rich.15

What’s sad about this horrific gap in living standards for two groups of people—victimized workers and wealthy investors—is that it was deliberately caused. It was brought about with the full knowledge and cooperation of American businesspersons, our American president and Congress, a majority of the economics profession, the country’s leading business schools and, of course, most investors, like those described in the preceding excerpt.

To get an idea of how preoccupied these people are with the status of wages in America, just read the tan-colored pages in almost any issue of Business Week.  Or go to The Wall Street Journal, on page A2. Readers regularly go to these pages to keep abreast of the merest possibility that wages may be about to go up, especially around the time the Federal Reserve is meeting, or labor statistics are being released.

Those who say that low- and middle-income Americans shouldn’t be envious of the incomes of the rich are the same hypocrites who watch the incomes of workers like predatory hawks. Granted, maybe envy is bad for the mental health of the poor and they should avoid it. Instead, possibly they should get mad as hell and vent their feelings by voting for politicians who aren’t bought and paid for by America’s conservative elite.

Now it’s time to take a closer look at how conservatives knowingly and deliberately perpetuate the “wage inflation” con. 


      

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