(First published by Rockenomics on Feb 24, 2011 at PinnacleDigest.com)
Robert Creamer is senior consultant for Strategic Consulting Group. This morning he was a guest on the Peter Schiff radio show to defend his article "
Why Americans Need Unions Now More Than Ever"
Peter Schiff had a difficult time containing his emotions during the discussions and Mr. Creamer was unable to get his point across, so I emailed and requested his article. He obliged and made some interesting arguments.[I've included the full text of his article at the bottom of the blog to allow him his due]
He writes, "This stagnation of middle class incomes has not happened because our economy has failed to grow over this period. In fact, real (adjusted for inflation) per capita gross domestic product (GDP) increased more than 80% over the period between 1975 and 2005. In the last ten years, before the Great Recession, it increased at an average rate of 1.8% per year. That means that if the benefits of economic growth were equally spread throughout our society, everyone should have been almost 20% better off (with compounding) in 2008 than they were in 1998.
But they weren’t better off. In fact, median family income actually dropped in the years before the recession. It went from $52,301 (in 2009 dollars) in 2000 to $50,112 in 2008. And, of course it continued to drop as the recession set in.....
So the answer to the question is simple. Virtually all of the increase in our gross domestic product over the ten years before the Great Recession went to the wealthiest 2% of the population."
Like so many modern economists, Creamer has failed to consider the parameters of his argument. The GDP, the once time sledge hammer of the economists tool bag, has become about as useful as a hand powered drill. GDP as any economist will tell you can be derived from a variety of methods, but the most common is from totaling consumption (consumer spending), investment by industry, government purchases and net exports. The astronomical trade deficits are well known and written about ad infinitum, so I don't need to get into those here other than to say they are a tremendous negative value in calculating GDP. Industry investment has been declining for years and American factory production has been in a steady state of decline, with fewer and fewer workers involved in manufacturing. Government spending has been growing steadily and dangerously, but the real growth and driver of the GDP is consumer spending.
In the 90's and 00's Americans used their homes as personal ATM's borrowing against the value of the home whenever something new came along that they wanted to purchase. The vast majority of Americans also bought on credit which is NOT part of the GDP calculation and household debt skyrocketed. All of this consumption by both the populous and the government drove GDP to dizzying heights over the past 30 years.
Traditionally, the GDP figure was used as a measure of wealth growth by a country, but when nations use credit to drive consumption, the country has more stuff but less wealth - exactly the opposite of what the Keynesian economists tell you to expect. The greater the trade deficit becomes on the back of domestic consumption, the more meaningless GDP becomes.
Rather than admit defeat and say their GDP calculation is flawed and no longer applies, they look to pass the blame elsewhere and Robert Creamer has set his sights on greedy corporations and their equally greedy CEOs. He states after saying that union membership has declined, "Collective bargaining is the only way to level the playing field – to assure that increases in American productivity are widely shared throughout the economy. "
The reality is that the exact opposite, once again is true.
I am a UAW/CAW member and I can assure you that the amount of work that gets done is the MINIMUM AMOUNT and nothing more. Unions do not increase productivity. There are NO MERIT increases in unionized shops, so there is NO INCENTIVE to increase production REGARDLESS OF THE WAGE. Union inefficiency combined with holding management hostage at collective bargaining times in the 70's and 80's, coupled with management that refused to listen to its clients needs is what killed the North American auto industry.
The real culprit of the disintegration of the middle class is ultimately a combination of cool new technology, cheap foreign labour and mostly an easy money policy. The easy money (debt) is a direct result of central banks ridiculously low interest rates and is at least 90% to blame for the modern family having a lower standard of living today. If they weren't carrying the debt, they wouldn't have interest payments eating up a sizeable portion of their income and they would have more disposable income.
Creamer's conclusion is to blame the wealthy saying that all of the increase in the GDP went to the wealthiest 2% of the population. Of course it did!! When the other 98% of the population spend all of their money and more, they are buying consumer goods and fuel for their SUV's from business owners and their shareholders and the last time I checked, the wealthy tend to become wealthy by providing goods and services in the marketplace.
In conclusion, the notion the unions are good for productivity is completely false and I've experienced that first hand; interest rates that entice people to spend rather than save will eventually lower the standard of living and finally, the GDP ain't what it used to be.
Cheers!
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The following is the complete text of Robert Creamer's response to my inquiry:
Why Americans Need Unions Now More Than Ever
How often do you hear someone say, “Oh, at one time unions were a good thing, but not anymore”?
The premise of this argument is that once upon a time there were robber barons stalking the land, and it was a fine thing that workers organized into unions to prevent them from hiring children and paying employees a pittance as they labored in sweatshops working fifteen-hour days.
Now, goes the narrative, in the age of high-tech industrial campuses and “information” workers, unions are “obsolete.”
Next time you hear that argument from an otherwise rational person, give them a good shake and insist that they wake up from their dream world.
The central problem facing the American economy – and our society – is the collapse of the American middle class. The incomes of the middle class Americans, and those who aspire to be middle class – 90% of Americans -- have been stagnant for almost three decades. This trend, which was briefly interrupted during the Clinton Administration, is the chief defining characteristic of our recent economic history.
This stagnation of middle class incomes has not happened because our economy has failed to grow over this period. In fact, real (adjusted for inflation) per capita gross domestic product (GDP) increased more than 80% over the period between 1975 and 2005. In the last ten years, before the Great Recession, it increased at an average rate of 1.8% per year. That means that if the benefits of economic growth were equally spread throughout our society, everyone should have been almost 20% better off (with compounding) in 2008 than they were in 1998.
But they weren’t better off. In fact, median family income actually dropped in the years before the recession. It went from $52,301 (in 2009 dollars) in 2000 to $50,112 in 2008. And, of course it continued to drop as the recession set in.
How is that possible?
Was it – as the Right likes to believe – because of the growth of the Federal Government? Nope. In fact, the percentage of GDP going to federal spending actually dropped during the last four years of the Clinton Administration. When Bush took office it began to increase again as the Republicans increased spending on wars. Over the last 28 years, federal spending has averaged about 20.9% of the GDP and varied within a range of only about 5%, with the high being in 1983 (in the middle of the Reagan years) and the low in 2000 before Bush took office. It has never even come close to the 43.6% of GDP that it consumed during World War II in 1943 and 1944, or the 41.9% it consumed in 1945. The percent of GDP that goes to Federal spending went up in 2009 and 2010 – but that was mainly because the economy shrunk on the one hand, and a major, temporary stimulus bill was need on the other to prevent another Great Depression.
Was it because taxes have skyrocketed? No again. In fact, according to the Census Bureau, the median household tax burden actually dropped from 24.9% in 2000 to 22.4% in 2009.
Was it that labor became less productive? No. In fact, there has been a major gap between the increase in the productivity of our workforce and the increase in their wages. Even when wages were improving at the end of the Clinton years, productivity went up 2.5% per year and median hourly wages went up only 1.5%.
From 2000 to 2004 worker productivity exploded by an annual rate of 3.8% but hourly wages went up only 1% and median family income actually dropped .9%.
The bottom line is that people who work for a living (most of us) are getting a smaller and smaller share of the nation’s economic pie.
In August of 2006, the New York Times reported that Federal Reserve study showed that, “Wages and salaries now make up the lowest share of the nation’s gross national product since the government began recording data in 1947; while corporate profits have climbed to their highest shares since the 1960.”
So the answer to the question is simple. Virtually all of the increase in our gross domestic product over the ten years before the Great Recession went to the wealthiest 2% of the population.
These changes in income distribution are not the result of “natural laws.” They are the result of systems set up by human beings that differentially benefit different groups in the society.
Economist Paul Krugman has summarized the history of income distribution in America.
At the beginning of the Great Depression, income inequality, and inequality in the control of wealth, was very high. Then came the great compression between 1929 and 1947. Real wages for workers in manufacturing rose 67% while real income for the richest 1% of Americans fell 17%. This period marked the birth of the American middle class. Two major forces drove these trends – unionization of major manufacturing sectors, and the public policies of the New Deal.
Then came the postwar boom, 1947 to 1973. Real wages rose 81% and the income of the richest 1% rose 38%. Growth was widely shared, but income inequality continued to drop.
From 1973 to 1980, everyone lost ground. Real wages fell 3% and income for the richest 1% fell 4%. The oil shocks, and the dramatic slowdown in economic growth in developing nations, took their toll on America and the world economy.
Then came what Krugman calls “the New Gilded Age.” Beginning in 1980, there were big gains at the very top. The tax policies of the Reagan administration magnified income redistribution. Between 1980 and 2004, real wages in manufacturing fell 1%, while real income of the richest one percent rose
135%.
The single largest contributor to this stagnation of middle class incomes has been the corporate attack on organized labor. The percentage of private sector workers in unions has shrunk from 35 percent to 7%. The exception has been the public sector, where 35% of teachers, firemen and public service workers now have access to collective bargaining.
The last thirty years shows conclusively that the “competitive market” – absent collective bargaining -- simply does not assure that everyday employees share in the fruits of increased productivity or economic growth. Left to their own devices, CEO’s will pad their own massive incomes and seek higher returns for the stockholders that hire them. That is especially true in an economic world that is globalized – where CEO’s can often hire labor at pennies on the dollar of what they would have to pay in the U.S. – if it were not for union contracts.
Collective bargaining is the only way to level the playing field – to assure that increases in American productivity are widely shared throughout the economy.
And when they are not shared, that is not only bad for the everyday family. It is horrible for the economy. Economies are in balance if productivity gains result in commensurately higher salaries for employees that allow them to buy the larger number of products and services that the productivity increases allow corporations to manufacture and sell. If they don’t have increased buying power – if all of the income growth goes to the top 2% -- then a demand deficit will inevitably develop that will lead to a recession – or depression. That gap in buying power can be filled for a while – as it was in the early 2000’s – with greater consumer debt. But after while the bubble bursts and the house of cards comes tumbling down.
We saw that movie – we know the ending. And it was mainly a result of the disparity between increased worker productivity and increased worker income. It was the direct consequence of the corporate attack on the right to join a union.
American workers – and the American economy – need unions now more than ever. They are the only means by which we can guarantee widely-shared economic growth. And as it turns out, sustained, long-term economic growth
requires widely-shared economic growth. Unions are the only way to prevent the collapse of the American middle class.
That’s why the fight in Wisconsin is so fundamental. Governor Scott Walker and his corporate supporters want to destroy labor unions – to eliminate the right to choose a union. They want a low wage economy. They want the freedom to pay people as little as possible at their companies – and in the government.
They believe if they can break public employee unions, that they can ultimately eliminate organized labor as a meaningful force in the American economy – and in American politics.
Walker’s action are a case study in right wing philosophy. He cut state taxes on corporations and then demanded that middle class state workers take cuts in wages and benefits in order to pay for the corporate tax cuts.
Luckily regular voters have begun to smell the coffee. Nationally a new poll shows that 61% of voters reject the kind of proposals that Walker is trying to cram down the throats of the people of Wisconsin.
In Wisconsin itself a new poll by Greenberg, Quinlan, Rosner Research found that a majority of Wisconsin voters disapprove of Walker’s job performance and give him a negative favorability of 39 percent favorable and 49 percent unfavorable. In contrast 62 percent of voters offer a favorable view of public employees and only 11 percent unfavorable. And 53 percent rate labor unions favorably with only 31 percent unfavorable.
Over half of the voters oppose the agenda offered by Walker and Republicans in the legislature. Only 43 percent favor it. There is a major intensity gap as well, with 39 percent strongly opposing their proposals and only 28 percent strongly supporting them.
In the end, the Republican attack on the right to choose a union completely ignores what is good for everyday Americans – and for the American economy. It is only concerned with what is good for the narrow economic and political interests of a tiny fraction of our population. That’s why they must be defeated. That’s why the battle of Wisconsin is really a battle for the survival of the American middle class.
Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win
(First published by Rockenomics March 31, 2011 at PinnacleDigest.com)
(First published by Rockenomics on Feb 10th, 2011 at PinnacleDigest.om)