Paul Krugman: The Big Disconnect

Thgis is important. There’s a powerful right-wing meme building about how rosy the US economy is. Unfortunately for most of us, it simply isn’t the case.

The Big Disconnect

Published: September 1, 2006

There are still some pundits out there lecturing people about how great the economy is. But most analysts seem to finally realize that Americans have good reasons to be unhappy with the state of the economy: although G.D.P. growth has been pretty good for the last few years, most workers have seen their wages lag behind inflation and their benefits deteriorate.

The disconnect between overall economic growth and the growing squeeze on many working Americans will probably play a big role this November, partly because President Bush seems so out of touch: the more he insists that it’s a great economy, the angrier voters seem to get. But the disconnect didn’t begin with Mr. Bush, and it won’t end with him, unless we have a major change in policies.

The stagnation of real wages – wages adjusted for inflation – actually goes back more than 30 years. The real wage of nonsupervisory workers reached a peak in the early 1970s, at the end of the postwar boom. Since then workers have sometimes gained ground, sometimes lost it, but they have never earned as much per hour as they did in 1973.

Meanwhile, the decline of employer benefits began in the Reagan years, although there was a temporary improvement during the Clinton-era boom. The most crucial benefit, employment-based health insurance, has been in rapid decline since 2000.

Ordinary American workers seem to understand the long-term disconnect between economic growth and their own fortunes better than most political analysts. Consider, for example, the results of a new poll of American workers by the Pew Research Center.

The center finds that workers perceive a long-term downward trend in their economic status. A majority say that it’s harder to earn a decent living than it was 20 or 30 years ago, and a plurality say that job benefits are worse too.

Are workers simply viewing the past through rose-colored glasses? The report seems to imply that they are: a section pointing out that workers surveyed in 1997 also said that it had gotten harder to make a decent living is titled, ‘As usual, people say things were better in the good old days.’

But as we’ve seen, real wages have been declining since the 1970s, so it makes sense that workers have consistently said that it’s harder to make a living today than it was a generation ago.

On the other side, workers’ concern about worsening benefits is new. In 1997, a plurality of workers said that employment benefits were better than they used to be. That made sense: in 1997, the health care crisis, which had been a big political issue a few years earlier, seemed to have gone into remission. Medical costs were relatively stable, and in a tight labor market, employers were competing to offer improved benefits. Workers felt, rightly, that benefits were pretty good by historical standards.

But now the health care crisis is back, both because medical costs are rising rapidly and because we’re living in an increasingly Wal-Martized economy, in which even big, highly profitable employers offer minimal benefits. Employment-based insurance began a steep decline with the 2001 recession, and the decline has continued in spite of economic recovery.

The latest Census report on incomes, poverty and health insurance, released this week, shows that in 2005, four years into the economic expansion, the percentage of Americans with private insurance of any kind reached its lowest level since 1987. And Americans feel, again correctly, that benefits are worse than they used to be.

Why have workers done so badly in a rich nation that keeps getting richer? That’s a matter of dispute, although I believe there’s a large political component: what we see today is the result of a quarter-century of policies that have systematically reduced workers’ bargaining power.

The important question now, however, is whether we’re finally going to try to do something about the big disconnect. Wages may be difficult to raise, but we won’t know until we try. And as for declining benefits – well, every other advanced country manages to provide everyone with health insurance, while spending less on health care than we do.

The big disconnect, in other words, provides as good an argument as you could possibly want for a smart, bold populism. All we need now are some smart, bold populist politicians.

The Discussion: 4 Comments

There aren’t any smart bold populists in the leadership of the Democratic Party – definitely none at all in the Republican Party. Does anyone know of any?

August 31, 2006 @ 10:16 pm | Comment

There aren’t any smart bold populists in the leadership of the Democratic Party – definitely none at all in the Republican Party. Does anyone know of any?

August 31, 2006 @ 10:17 pm | Comment

Though he’s a little green, John Edwards is one of the few mainstream politicians who consistently addresses these issues.

A lot of big business types are starting to throw their weight behind some sort of national healthcare program – they realize it’s a way to increase their own competitiveness in the global market. I genuinely think that any Democrat elected to the White House, assuming he/she has at least one branch of Congress behind him/her, will manage to establish some sort of system that’s better and more comprehensive than what we have now. There’s a lot of momentum in that direction.

As to the larger wealth inequality issue – wow. I don’t know. When you can’t even have a discussion about a national healthcare system without people screaming “Socialized medicine!”, one wonders what it will take to have an honest discussion about the distribution of wealth in this country? Some sort of economic crisis, I’m afraid.

September 1, 2006 @ 12:54 am | Comment

So sad. And with the various sides so hopelessly polarized, I’m afraid nothing less than a very painful crisis will force them to face reality.

September 1, 2006 @ 1:15 am | Comment

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