hundreds of tiny workers Theusual suspects — globalization, automation and the shift to serviceindustries — have all been picked over. So let's try to considerthis in terms of historical shifts. I have 4 theories worthexploring. (Photo: Shutterstock)

|

(Bloomberg Opinion) –Which of these two scenarios describes theU.S. economy?

|

No. 1. The economy is better than ever: Thestock market is near a record high, wages are rising, there aremore job openings than applicants, household wealth has hit arecord, gross domestic product is growing briskly, house valueshave recovered from the bust, and consumer confidence is back — andso is America!

|

No. 2. Real Americans are suffering:Inflation-adjusted wages are stagnant or even declining, economicmobility is nonexistent, gasoline is getting expensive as oilprices rise, labor force participation rates are stuck at levelsnot seen since the late 1970s, health care is brutally expensiveand getting more so, and rents have been rising. There is a loomingretirement crisis coming, as households havetoo little savings, and pensions are underfunded — the averageAmerican is getting crushed!

|

In reality, this binary choice is a false construct and both ofthese scenarios are very true.

|

But who you are, where you live, your job and educationalbackground very much determines which of those two descriptions yourelate to more. And while there has always been a divide betweenrich and poor, it has grown especially acute during the pastdecade.

|

In broad terms, since 2010 the U.S. has seen a modest, post-credit crisis recovery slowlytaking hold. True, there has been lots of very encouraging economicnews, especially during the past five years. But it has been lumpyand unevenly distributed by geography, industry and educationalattainment. Even the gig economy hasn't worked out as hoped, withmany workers being paid much less than needed to support afamily.

|

There are more than enough economic data series for dishonestcommentators to cherry pick one in support of their biasedpositions. My preference instead is to look at the big picture totry to discern why we have such a bifurcated economy.

|

The usual suspects — globalization, automation and the shift toservice industries — have all been picked over. So let's try toconsider this in terms of historical shifts. I have four theoriesworth exploring:

|

No 1. The credit crisis changedeverything: The financial crisis was so large andall-encompassing that even now it's hard to grasp its import. Itrevealed enormous stresses that weren't readily apparent before.You can draw a straight line from weak wage gains to rising home-equitywithdrawals and from rising real-estate prices to aggressive homerefinancing.

|

After the crisis, many families were forced to honestlyrecognize their own financial situations. Even though real wageshad been mostly flat for decades, the easy credit made it possiblefor millions of people to pretend otherwise. It's a social andpsychological stress event when people must accept that, despiteworking long and hard, their living standard is falling. This is astrue for hedge funds as it is for middle-class families.

|

No. 2. Unions declined: Unions once guaranteed the middle-class goodjobs at a living wage. The trade-off was increased labor costs forcompanies and higher-priced manufactured goods for consumers.

|

That was then. Membership in labor unions has been falling sincethe 1950s. As of 2017, just 10.7 percent of wage and salary workersin the U.S. belonged to a union; that is half of what it was in1983. The share of unionized workers in the private sector is evenlower, at 6.5 percent.

|

A turning point in the fate of unions came when President RonaldReagan fired striking members of the Professional Air TrafficControllers Organization. A number of states, especially in theSouth, passed laws making it harder for unions to organize. Asunion membership declined, so did the ability of workers to win payincreases from employers. This ties in to the next point.

|

No. 3. Capital was rewarded instead oflabor: We can point to the Reagan, Clinton, Bush andTrump administrations for various changes to the tax code that weremuch friendlier to capital than to labor. Capital gains taxes fell,as did the top income-tax brackets. Policies that were extremelyshareholder friendly were also put into place. Although incomeinequality has been rising for decades, these four administrationshad an outsized impact.

|

Despite huge increases in output and productivity during thepast six decades, a shrinking share of those gains have beenfalling to workers. Although household income rose during thisperiod, much of the gain can be attributed to the rise of thetwo-income family, as large numbers of women entered theworkforce.

|

No. 4. The vast American middle class was ahistorical aberration: My pet thesis, admittedly notparticularly one well-supported by data, is that the broad sharingof so much of the nation's wealth was an anomaly, the result of anunusual confluence of forces that sprang from the Great Depressionand World War II. It was a one-off that couldn't resist powerfulhistorical forces.

|

Let's back up a bit. During the feudal era and early stages ofcapitalism, much of the population was impoverished and eitherengaged in agriculture, and later on, factory work; above that wasa small cohort of craftsmen, shop owners and merchants; above thatwas an even smaller class of nobles and royals — and later on,industrial magnates — with fabulous wealth at their disposal.

|

Extrapolate that to the present, and we have the working poor,the middle class and the professional class, and a similarpyramid-shaped wealth distribution.

|

The Great Depression wiped out much of the wealth of the richestAmericans. Then, after World War II, 16 million American soldiersreturned home. The GI Bill gave them a chance to get a collegeeducation; pent up postwar consumer demand meant manufacturing jobswere plentiful and well-paying.

|

Most of the rest of the world was in ruins at the time so therewas little competition for U.S. industry. From the Americanperspective, all seemed good.

|

Or it was until mean reversion began to rear its head. Thesepostwar factors faded during the following decades.Eventually, the economy returned to its prewar stratifications.

|

The U.S. economic expansion is both robust and weak,broad and narrow, higher and lower than before thefinancial crisis. How these economic gains have been distributed islikely to have an impact for decades to come.

|

READ MORE at BenefitsPRO:

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.