I have a few things I want to talk about, but this is probably the most important. I want to talk about economic liberalization and what’s called “globalization” and what kind of effects it has on ordinary Americans.
The first thing I would like to point out is that, despite the talk about how free markets have paved the way for America’s success as an economic juggernaut, America is not a market economy and never has been. America’s success has been a result of gross violations of market principles. The closest things approximating market economies are poverty-stricken, underdeveloped nations whose colonizers ram it down their throats. (This is, of course, referred to as “socialism for the rich and capitalism for the poor,” which I have discussed here.) If America were a market economy, we, like them, would be seeking our comparative advantage.
This did not stop a wave of economic liberalization policies taking place some 30 years ago. With it, we have seen what is today being called globalization (which, by the way, incorporates very little of Adam Smith’s ideas). These movements have most closely been linked to Milton Friedman and his advocacy for economic liberalism. These policies have been defended, like most changes to liberalization have been around the world, on grounds of what’s usually dubbed an “economic miracle.” GDP rises, corporate profits soar, etc. All looks well. But what kind of effect is it having on the ordinary American? Like in other nations where liberalization is promoted (e.g. Chile under Pinochet, Brazil, Egypt, etc.), the masses approach pauperization and toil away while the wealthiest benefit handsomely. That is, the observed increase in wealth is concentrated in the hands of a tiny minority of individuals. Some refer to this as “the rich getting richer and the poor getting poorer.” Let’s look at it in more detail.
An in-depth look at this issue was provided in a 1999 study by Chuck Collins, Betsy Leondar-Wright, and Holly Sklar. What they find is that most people have lost wealth, despite the economic boom in the 1990s. Write the authors, “Between 1983 and 1995, the inflation-adjusted net worth of the top 1 percent swelled by 17 percent. The bottom 40 percent of households lost an astounding 80 percent.”
Through efforts to liberalize the economy, people’s wages have decreased and working hours have increased. At one time, Americans worked the fewest hours of any developed nation—what one would expect in the wealthiest nation. Today, we are among the most worked of any developed nation. King Banaian, professor and chairman of the economics department at SCSU, asks how wages could decrease and hours increase during a period of great corporate profits. If we look at the period between 2003 and 2007, which saw a high increase in productivity, real median wages stagnated. Some refer to this as the gap between productivity and wages. Even when we include benefits, real median compensation has been stagnant (e.g. -1.1% for the median wage earner). If we look at the average weekly earnings between 1964 and 2004, we see that real wages have been decreasing. The answer to Dr. Banaian’s question: income is not shared equally. This is referred to income disparity or economic inequality. So, despite increasing corporate profits and increased productivity, the gains have only been realized for a few, very wealthy individuals.
Dr. Banaian doesn’t like the use of median wages, though. When measuring wages for the typical American, I do believe median is better. Dr. Lee explains why here. When measuring income, the U.S. Census Bureau prefers to use median income over average (mean) income because it “provides a more accurate representation.” Unfortunately, I don’t have the data on historical mean wages. The only thing I found was this graph, which shows a marked decrease in real average wages during a period referred to as the era of liberalization and globalization. Likewise, data provided by the government shows that real before-tax household incomes have been fairly stagnant since 1989, except for the highest percentiles of earners. This is precisely what one would expect given the information provided above.