Sunday, October 7, 2012

Reaganomics: The End of Rising Wages

Graph of worker productivity vs wage and compensation, 1947-2007
For the past few years, the American economy has been in a prolonged period of stagnation. Since the financial crisis in 2007, America's poor economic performance has been described as a recession. Some claim that we are now having a slow recovery from this recession, while others think we are still in it. What is never mentioned in mainstream political discussions is the historical context of this recession. There is one statistic in particular that goes a long way in explaining what is happening in our economy: While average worker productivity has been steadily increasing for over 50 years, average wages and compensation have been roughly stagnant for about 30 years. The idea that everything was okay until just a few years ago is clearly not true. The stagnation we are now experiencing is simply the continuation of a decades-long trend. Getting back to "business as usual" will not solve the problems we face today, because it is the status quo that has brought us to our current situation. Improving our economy will instead require fundamental changes to our economic and political systems. Without such systemic change, we will continue on our current path of stagnation indefinitely.

Ronald Reagan
The causes of the stagnation we have experienced over that past 30 years are apparent when one considers the fact that a political revolution occurred at the same time. The so-called "Reagan Revolution" was a fundamental shift in both political policy and culture. A push towards policies of deregulation and small-government came along with an increased cultural emphasis on individuality and personal fulfillment. Whatever the intentions of these changes were, it is clear that they have had a negative effect on our economy from which we have not yet recovered. Corporations and wealthy individuals, who continued to benefit from rising profits, naturally saw the Reagan era as a positive trend. Workers who complained about the end of the rising wages they had been accustomed to were labeled as selfish, despite the fact that their productivity had continued to increase. Demands for policies to counteract the stagnation of wages were labeled as "redistribution of wealth", when in fact it was the status quo that was causing such a redistribution, but one in the opposite direction. The surplus revenue that had previously been given to employees in the form of rising wages and benefits was now being used to generate record corporate profits and massive bonuses to corporate executives. What followed could have been easily predicted: increasing economic inequality and political polarization which has continued to this day. 


To explain all of our economic problems as the result of Reagan's policies would be an oversimplification, of course. Stagnating wages are just one symptom of an unhealthy system, both in America and globally. There is another narrative that can explain this trend, which has long been known as an inevitable long-term challenge faced by human civilization. That challenge is to make our industrial civilization sustainable in a world without oil. With fewer and fewer new oil reserves being discovered, the urgency of transitioning to a post-oil economy is greater than ever. It seems inevitable that civilization will have to reduce its consumption of energy, and we can already see the beginnings of this realization in our political culture. There is an increasing emphasis on conservation and "living within our means", on both sides of the political spectrum. It may seem reasonable to ask people to be satisfied with their current standard of living, considering that oil is becoming increasingly scarce. But this justification of wage stagnation ignores the fact that worker productivity has continued to increase. Although the time may soon come when everyone must accept a more modest standard of living, the economic trends of the past three decades have not been caused by rising oil prices. If these trends are allowed to continue, however, the burden of sustaining a post-oil civilization will fall on the poorest and the weakest in society. With economic inequality reaching medieval levels, severe energy scarcity could mean a bleak neo-feudal society of haves and have-nots. The super rich will continue to live in luxury while the rest of us are left in a collapsing industrial civilization. The power structures will do whatever they can to preserve the political status quo as we transition to a sustainable economy. If they are successful, we will find ourselves living in a dystopian future with no end in sight. The Middle Ages was a period of stagnation, conflict, and oppression, and it lasted a long time. By the end of the 21st century, human civilization will be sustainable one way or another. The only question is what kind of society will be left to sustain.

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