It is Official: The Middle Class is Being Screwed by the Current Economic Elite

This is the conclusion of the a Nobel Prize-winning economist and a mainstream think tank, The Council of Foreign Relations. Here is a bit from the Reuters news report:

Global capitalism isn’t working for the American middle class. That isn’t a headline from the left-leaning Huffington Post, or a comment on Glenn Beck’s right-wing populist blackboard. It is, instead, the conclusion of a rigorous analysis bearing the imprimatur of the U.S. establishment: the paper’s lead author is Michael Spence, recipient of the Nobel Prize in economic sciences, and it was published by the Council on Foreign Relations.

Spence and his co-author, Sandile Hlatshwayo, examined the changes in the structure of the U.S. economy, particularly employment trends, over the past 20 years. They found that value added per U.S. worker increased sharply during that period – 21 per cent for the economy as a whole, and 44 per cent in the “tradable” sector, which is geek-speak for those businesses integrated into the global economy. But even as productivity soared, wages and job opportunities stagnated.

The take-away is this: Globalization is making U.S. companies more productive, but the benefits are mostly being enjoyed by the C-suite. The middle class, meanwhile, is struggling to find work, and many of the jobs available are poorly paid.

I really liked this bit of the news report. It gets facts straight and priorities right:

Spence says that as he was doing his research, he was often asked what “market failure” was responsible for these outcomes: Where were the skewed incentives, flawed regulations or missing information that led to this poor result? That question, Spence says, misses the point. “Multinational companies,” he said, “are doing exactly what one would expect them to do. The resulting efficiency of the global system is high and rising. So there is no market failure.”

This conclusion is a very big deal – Spence is telling us that global capitalism is working the way it should, but that the American middle class is losing out anyway. Since global capitalism is the best way we’ve come up with so far to run our economy, that creates quite a dilemma.

Spence is honest enough to admit that he has no easy answers. But he has posed the right question. American politicians in both parties are focused on a budget debate that is superficial, premature and ultimately about something pretty easy to figure out. Instead, we should all be working on the much bigger problem of how to make capitalism work for the American middle class.

When your economic engine creates unfair results, the only recourse is to use the public sector -- government -- to right the economic wrongs. The right wing political types hate this because they worship "laissez-faire" and think a "free market" is god. But the truth is that the economic mechanism called "capitalism" has no ethics built into it. Humans have to supply that. And the only real tool is via the government, through a public debate about fairness and just economic rewards.