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Friday, September 01, 2006

Paul Krugman: The Big Disconnect

Paul Krugman on the disconnect between pundits lectures on the economy and the experience of typical families:

The Big Disconnect, by Paul Krugman, Commentary, NY Times: There are still some pundits out there lecturing people about how great the economy is. But most analysts seem to finally realize that Americans have good reasons to be unhappy with the state of the economy: although G.D.P. growth has been pretty good for the last few years, most workers have seen their wages lag behind inflation and their benefits deteriorate.

The disconnect between overall economic growth and the growing squeeze on many working Americans will probably play a big role this November, partly because President Bush seems so out of touch: the more he insists that it’s a great economy, the angrier voters seem to get. But the disconnect didn’t begin with Mr. Bush, and it won’t end with him, unless we have a major change in policies.

The stagnation of real wages ... goes back more than 30 years. The real wage of nonsupervisory workers reached a peak in the early 1970’s, at the end of the postwar boom. ... Meanwhile, the decline of employer benefits began in the Reagan years, although there was a temporary improvement during the Clinton-era boom. The most crucial benefit, employment-based health insurance, has been in rapid decline since 2000.

Ordinary American workers seem to understand the long-term disconnect between economic growth and their own fortunes better than most political analysts. Consider, for example, the results of a new poll of American workers by the Pew Research Center.

The center finds that workers perceive a long-term downward trend in their economic status. A majority say that it’s harder to earn a decent living than it was 20 or 30 years ago, and a plurality say that job benefits are worse too. ...

[W]orkers’ concern about worsening benefits is new. In 1997, a plurality of workers said that employment benefits were better than they used to be. That made sense... Workers felt, rightly, that benefits were pretty good by historical standards.

But now the health care crisis is back, both because medical costs are rising rapidly and because we’re living in an increasingly Wal-Martized economy, in which even big, highly profitable employers offer minimal benefits...

The latest Census report on incomes, poverty and health insurance, released this week, shows that in 2005, four years into the economic expansion, the percentage of Americans with private insurance of any kind reached its lowest level since 1987. And Americans feel, again correctly, that benefits are worse than they used to be.

Why have workers done so badly in a rich nation that keeps getting richer? That’s a matter of dispute, although I believe there’s a large political component: what we see today is the result of a quarter-century of policies that have systematically reduced workers’ bargaining power.

The important question now, however, is whether we’re finally going to try to do something about the big disconnect. Wages may be difficult to raise, but we won’t know until we try. And as for declining benefits — well, every other advanced country manages to provide everyone with health insurance, while spending less on health care than we do.

The big disconnect, in other words, provides as good an argument as you could possibly want for a smart, bold populism. All we need now are some smart, bold populist politicians.

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Previous (8/28) column: Paul Krugman: Broken Promises
Next (9/4) column: Paul Krugman: Health Policy Malpractice

    Posted by on Friday, September 1, 2006 at 12:15 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (53)

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