The Economy and Mr. Bush

[Fred Jones]

The Economy and Mr. Bush

http://www.washingtonpost.com/wp-dyn/content/article/2005/12/27/AR2005122701080.html

THE PAST YEAR has been remarkable for the economic disasters that did not happen. The huge U.S. trade deficit, which threatened a collapse in the dollar and a destabilizing spike in U.S. interest rates, actually delivered neither. High oil prices, which peaked dramatically after hurricanes devastated the Gulf Coast, created neither gas lines nor the wider economic fallout that many had anticipated. Instead, the U.S. economy kept growing at a rate close to the impressive 4.2 percent notched up in 2004, which many had assumed was unsustainable. All this testifies to the flexibility of the economy and the wisdom of the Federal Reserve -- though it shouldn't be assumed that the trade deficit, even bigger now than it was a year ago, will remain forever free of consequences.

Yet on one important measure, the economic news hasn't been as good. The majority of workers have not felt the benefits. The issue is not joblessness: Ten years ago economists debated whether unemployment could fall below 6 percent without triggering inflation, but in November joblessness stood at just 5 percent, down from 5.4 percent a year earlier -- a feat that the euro zone, with an unemployment rate of 8.3 percent, can only envy. Rather, the problem for workers lies in take-home pay. Wages for blue-collar manufacturing workers and non-managers in services have remained stagnant since the economic recovery began in November 2001.

Part of the reason lies in the rising cost of non-wage benefits, especially health insurance. The value of benefits received by the average civilian worker rose 5.1 percent in the year to September, and that increase followed two years in which benefit costs were roaring ahead at a rate of more than 6 percent. These increases, which outpaced inflation, help explain disappointing wages. If it costs more to provide medical insurance to workers, employers will pay themselves back by holding wages down.

But it may also be true that technology and globalization are contributing to wage stagnation; if workers can be replaced by machines or foreigners, they have limited bargaining power. In the four years since the recovery began, inflation-adjusted compensation (that is, wages plus benefits, as measured by the government's Employment Cost Index) has risen just 0.8 percent per year on average, less than in past recoveries and less than gains in productivity would seem to justify. One might expect wage gains to improve as the recovery matures and the economy reaches full employment. This may yet happen: After all, neither technological progress nor globalization prevented solid wage gains in the 1990s. But so far there's no clear evidence that the corner has been turned.

Moreover, what pay gains there have been are distributed unevenly. Educated workers have done best: In manufacturing, the compensation for white-collar workers rose 4.8 percent in nominal terms in the year to September, whereas the compensation for blue-collar workers rose only 2.2 percent. Equally, some sectors did better than others: Blue-collar aircraft workers wracked up gains of 15.6 percent, while food-store workers managed only 1.9 percent. It's a rule of political life that losers complain louder than winners celebrate, so the sense of a joyless economic recovery is compounded.

What policy prescriptions flow from this? It would be wrong to suppress variations in wage gains across the economy, since these help shift workers to the industries that need them most. But the increasing rewards for education underline the importance of the Bush administration's efforts to improve public schools, while the deleterious effects of health care inflation on wages point to the urgency of measures that could cut wasteful health spending, an issue on which the administration's agenda is confused. Finally, the signs that market forces may be making it hard for workers to win pay gains raise fresh questions about President Bush's tax strategy. Mr. Bush has cut taxes on capital, even though capital has increased its share of the proceeds from the economy; the cuts may ultimately force a compensating increase in taxes on workers, whose incomes haven't done as well. This amounts to common sense inverted. Rather than counteracting a troubling aspect of the economy, Mr. Bush's policy makes it worse.

[nelms]

Wow, what a surprise - a Washington Post EDITORIAL trying it's best to find the negatives in this growing economy. It doesn't take a rocket scientist to figure out that manufacturing jobs are paying less because we are continuing to move to a service economy. That process is still not over with. This one statment shows how much this editorialist knows: "After all, neither technological progress nor globalization prevented solid wage gains in the 1990s". :doh:

[chomerics]

The Economy and Mr. Bush

http://www.washingtonpost.com/wp-dyn/content/article/2005/12/27/AR2005122701080.html

THE PAST YEAR has been remarkable for the economic disasters that did not happen. The huge U.S. trade deficit, which threatened a collapse in the dollar and a destabilizing spike in U.S. interest rates, actually delivered neither. High oil prices, which peaked dramatically after hurricanes devastated the Gulf Coast, created neither gas lines nor the wider economic fallout that many had anticipated. Instead, the U.S. economy kept growing at a rate close to the impressive 4.2 percent notched up in 2004, which many had assumed was unsustainable. All this testifies to the flexibility of the economy and the wisdom of the Federal Reserve -- though it shouldn't be assumed that the trade deficit, even bigger now than it was a year ago, will remain forever free of consequences.

Yet on one important measure, the economic news hasn't been as good. The majority of workers have not felt the benefits. The issue is not joblessness: Ten years ago economists debated whether unemployment could fall below 6 percent without triggering inflation, but in November joblessness stood at just 5 percent, down from 5.4 percent a year earlier -- a feat that the euro zone, with an unemployment rate of 8.3 percent, can only envy. Rather, the problem for workers lies in take-home pay. Wages for blue-collar manufacturing workers and non-managers in services have remained stagnant since the economic recovery began in November 2001.

Part of the reason lies in the rising cost of non-wage benefits, especially health insurance. The value of benefits received by the average civilian worker rose 5.1 percent in the year to September, and that increase followed two years in which benefit costs were roaring ahead at a rate of more than 6 percent. These increases, which outpaced inflation, help explain disappointing wages. If it costs more to provide medical insurance to workers, employers will pay themselves back by holding wages down.

But it may also be true that technology and globalization are contributing to wage stagnation; if workers can be replaced by machines or foreigners, they have limited bargaining power. In the four years since the recovery began, inflation-adjusted compensation (that is, wages plus benefits, as measured by the government's Employment Cost Index) has risen just 0.8 percent per year on average, less than in past recoveries and less than gains in productivity would seem to justify. One might expect wage gains to improve as the recovery matures and the economy reaches full employment. This may yet happen: After all, neither technological progress nor globalization prevented solid wage gains in the 1990s. But so far there's no clear evidence that the corner has been turned.

Moreover, what pay gains there have been are distributed unevenly. Educated workers have done best: In manufacturing, the compensation for white-collar workers rose 4.8 percent in nominal terms in the year to September, whereas the compensation for blue-collar workers rose only 2.2 percent. Equally, some sectors did better than others: Blue-collar aircraft workers wracked up gains of 15.6 percent, while food-store workers managed only 1.9 percent. It's a rule of political life that losers complain louder than winners celebrate, so the sense of a joyless economic recovery is compounded.

What policy prescriptions flow from this? It would be wrong to suppress variations in wage gains across the economy, since these help shift workers to the industries that need them most. But the increasing rewards for education underline the importance of the Bush administration's efforts to improve public schools, while the deleterious effects of health care inflation on wages point to the urgency of measures that could cut wasteful health spending, an issue on which the administration's agenda is confused. Finally, the signs that market forces may be making it hard for workers to win pay gains raise fresh questions about President Bush's tax strategy. Mr. Bush has cut taxes on capital, even though capital has increased its share of the proceeds from the economy; the cuts may ultimately force a compensating increase in taxes on workers, whose incomes haven't done as well. This amounts to common sense inverted. Rather than counteracting a troubling aspect of the economy, Mr. Bush's policy makes it worse.

Good editorial, and I agree. You watch Fox News, and you'll think we are in the late 90's, yet the American public continued to disagree. . .why is that?

There are two distinct reasons, energy and health care. The GDP is growing, but paychecks are shrinking, and the money a person has today is less then they had before Bush took office. In my paycheck, I got a COLA of I think 3-4% last year. My take home money actually went down because of health care costs, and I also lost money because of energy. So in essence, in 2002, I was much better off then today, and I am in the top % bracket in terms of taxes. I have no idea how some of these people are affording to live.

For another example, I was just in upper Pennsylvania over christmas. The cost of rent is from $300-$500 in the town I was in, yet the price of oil is $2.30/gallon. You actually have people paying more for energy then they are for their rent, that is just a complete joke, and it is a very good reason why people look at the Faux News version as the best economy a complete joke.

BTW, there is a sure fire way to increase the economy, cut taxes and increase spending. It will work every time, but politicians who know a bit about economics don't do it because it is a foolish way to run a country, as it leads to bankruptcy. Too bad Bush and his economic advisers have the economic savy of a 3rd grader trying to trade their apple for a snickers bar.

[SkinsHokieFan]

I guess nobody ever interviews my painters

The going rate for a "grunt" painter was about 10 bucks an hour back in 2002

This past summer it was a minimum of 18 dollars an hour

These guys have nearly DOUBLED their earnings in 4 years!

:doh:

[chomerics]

I guess nobody ever interviews my painters

The going rate for a "grunt" painter was about 10 bucks an hour back in 2002

This past summer it was a minimum of 18 dollars an hour

These guys have nearly DOUBLED their earnings in 4 years!

:doh:

You need to stop being so nice to your employees :laugh:

[SkinsHokieFan]

You need to stop being so nice to your employees :laugh:

Yeah I wouldn't have many left

But, just from my own personal observation, the market for labor in the contruction industry around here is starting to go through the roof

Foreman want to make 30 bucks an hour

And painters, freakin painters, want 18

If you put them up on a 40 foot ladder, its another 5 bucks an hour they want

Now, I barely ever give them 18, or 30, but it isn't exactly peanuts and its not like it was back in 2002 where I could pay a crew 500 dollars a day (including matierals) to get a job done

[Cdowwe]

wow big surprise, blue collar jobs remaining stagnant

[OaktonSkins/BushFan]

Yeah I wouldn't have many left

But, just from my own personal observation, the market for labor in the contruction industry around here is starting to go through the roof

Foreman want to make 30 bucks an hour

And painters, freakin painters, want 18

If you put them up on a 40 foot ladder, its another 5 bucks an hour they want

Now, I barely ever give them 18, or 30, but it isn't exactly peanuts and its not like it was back in 2002 where I could pay a crew 500 dollars a day (including matierals) to get a job done

I'm reaching the end of an extensive, complete home renovation. I've hired three different painting contractors. All of them suck, and all of them are very expensive. At some point, I still need to find a good painter to finish the job and redo some areas (interior doors in particular) which are unacceptable. It doesn't matter if it's a $2M housse or a $200K house, the labor pool is the same.

[Kilmer17]

Of course this "great" editorial refuses to acknowledge a most important piece of the economic puzzle. That being the fact that wages were inflated to begin with. Of course wages are stagnant, that's what happens when a guy who should have made 10 bucks an hour 10 years ago was making 20. Now that he makes 20, it seems bad. But the reality is that today's wages are more in line with historical averages than 10 years ago.

And of course it doesnt address the REAL problem which is consumerism. As long as we want cheap shirts, but want to pay the workers making those shirts too much, those jobs go oversees, creating a classic supply/demand situation favoring the employers.

[Destino]

I think it's amazing that after the presidential campaigns in which health care was a major issue, nothing has been done. Drug markets are still closed to protect the profits of drug companies that charge americans more for the same drugs they sell for less over seas. So much for "free market" ideals. Even the lazy law making that was the suggested cap on damages is a fantasy at this point. Instead we got a prescription drug plan that forbids the government from bargaining in bulk to reduce costs. They've shielded the drug companies again at our expense!!!

Of course wages aren't going to increase. Ask your employer how much your health care coverage has increased in the last two years to understand why. The health care system is failing america and no one seems to have the guts to step in and do anything about it. It looks like they've chosen instead to wait until it reaches crisis level. The costs will continue to go up as more people have to use the emergency room as a doctors office because they can no longer afford standard care.

[SkinsHokieFan]

I'm reaching the end of an extensive, complete home renovation. I've hired three different painting contractors. All of them suck, and all of them are very expensive. At some point, I still need to find a good painter to finish the job and redo some areas (interior doors in particular) which are unacceptable. It doesn't matter if it's a $2M housse or a $200K house, the labor pool is the same.

In all seriousness, paint contractors do suck, and in my 4 years in being involved in home improvement, they are the biggest pain in the ass, charge the most for what little they do, and make the most mistakes

I am not surprised at your expierence, I have probably used about 25 contractors in 4 years, and have kept the same 4 that do a good job for a respectable price