|Job creation not likely to solve problem of income inequality (Dolsen 2/26/12)||| Print ||
Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. – Abraham Lincoln
Most economists acknowledge that our nation is experiencing great income inequality, that a handful of Americans are accumulating the lion’s share of wealth. And the presidential campaign is filled with rhetoric about how to fix the problem. All agree that we must create more jobs, jobs, jobs. And in the GOP candidates’ debates and stump speeches there is a consensus that cutting taxes on the wealthy will do the trick, releasing the capital that will invariably go into job creation.
But that is very questionable. Since the tax cuts designed to reduce a budget surplus were passed a decade ago, the U.S. has lost 14 million jobs, only 3 million of which have come back. Our economy is experiencing a wrenching shift decreasing the value of labor and increasing the value of capital.
It has not always been so. In the Halcyon Days for labor following WW II and continuing until the 1980s, we had a vast middle-class working population, financially secure and relatively content, with actual livelihoods, not just jobs. When profits went up, both labor and capital benefited. But since then, in spite of enormous strides in productivity, labor’s wages have been flat. And capital has swelled.
We shouldn’t be surprised. We’ve been through such upheavals before. At one time, over 80% of Americans worked in agriculture, but because of technological advancement – the cotton gin, combines, automated produce pickers, etc. – today 2% of our workforce does it all. The Industrial Revolution came along and opened factories to workers, employing 46% of the workforce by WW II. Technological advancement reduced that to 12% today.
But now there is the Information Revolution, replete with a whole new set of problems we seem unequipped to address. Along with globalization, technological advancement has kicked the growing imbalance of labor and capital into high gear.
A decade ago, when President G. W. Bush announced the tax cuts for the wealthy as means to create jobs, financial analysts explored the opportunities. A representative from Goldman Sachs, on CNBC, when asked how he would advise his clients to spend their windfall, he said that “they should look at companies that are reducing labor costs through innovation and outsourcing,” and don’t forget “to consider emerging markets.” Not much room for American job creation there.
A few months ago, the Wall Street Journal pointed out that “multi-national companies… cut their work forces in the U.S. by 2.9 million during the 2000s, while increasing employment overseas by 2.4 million.” Apple, the American digital icon, employs 50,000 high tech people in the U.S., but those cool computers, iPods, and iPads are made by armies of more than 800,000 wage slaves overseas. And while many of those ubiquitous digital gadgets are made for entertainment, most are made as labor-saving devices. Computer and robot marketers don’t try to sell to corporations with the promise to create more jobs, but to cut labor costs, to eliminate labor. Indeed, tax cuts for investments can cause great losses of jobs.
And what does that mean to workers who still retain jobs? David Ricardo, the classical economist, posited the “iron law of wages” – that in conditions of wage competition and unlimited labor supply, the wages of all will fall to just above subsistence.
And what about those high-tech, educated workers? They will never be needed in the numbers the manufacturing industry formerly needed labor. Plus, their tasks involve making technology itself more user-friendly and more efficient, perhaps eliminating jobs in their own areas of expertise. And more corporations are outsourcing the high-end designing and scaling to India and China. “Creative destruction” can hurt American well-being if the destruction is in the U.S. and the creativity is in other countries. So, the majority of the best and brightest graduates of America’s Ivy League colleges have instead turned away from the high tech world to the global financial investment sector – now over 30% of our economy – producing little of the critical goods and services that meet America’s needs.
The imbalance causes another serious problem, setting one class of Americans against another with differing sets of values. Politicos have cited the lack of the work ethic in the employed and the unemployed as a cause of our financial problems. But much of capital needs no work ethic. Governor Romney tells about working hard for his money and how he should be held in high esteem for his success. But if the governor had secretly died a year or two ago, he would still have received an income of $20 million a year – more than the total average income of four hundred American working families – without lifting a finger. His claim that moderate income people “envy” him is a little misguided. “Resent” him is probably more appropriate.
I’m not knocking investment income. It’s helped me. I’m retired and need to take advantage of the “fruits of other’s labor.” Nor are working people angry about capitalism. It’s the lack of balance that is disturbing.
President Obama early on proposed some modest proposals to create jobs directly, and most economists agree that those efforts prevented a total depression. But even those meager efforts were greeted with screams of “socialism” and “Marxism,” dampening any prospects of serious proposals to put capitalism on an even keel.
Speaker Newt Gingrich, in a recent speech, said, “Show me somebody who has consistently made money while losing money for workers, and I’ll show you someone who has undermined capitalism.”
That’s a sweeping indictment, Mr. Gingrich, and would include a lot of Americans. It’s how many in our nation now measure the success of capitalism.
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