Reviews | Structuring the economy to give money to the rich is inflationary

I just read this NYT column by Bryan Stryker, about how Democrats can win back the working class. I have no idea what impact his proposals will have, but from an economic point of view they will do little to help the working class.

The big problem with Stryker’s argument is that he assumes that the working class will somehow benefit from having more manufacturing jobs. This would have been true twenty years ago, when unqualified workers in manufacturing enjoyed a substantial wage premium over workers employed in other sectors. This is no longer true today.

Because of our trade deals (especially Clinton’s), which cost millions of manufacturing jobs, the sector no longer offers any substantial wage premium over employment in other sectors. At the most basic level, the average hourly earnings of production workers and non-supervisors in manufacturing are now less than 92.0% of the average for the private sector as a whole.[1]

Much of the deterioration in the quality of manufacturing jobs is associated with the decline of unions in the sector. In 1993, 19.2% of workers in the manufacturing sector were unionized, compared to 11.6% for the private sector as a whole. By 2021, the gap in unionization rates had largely disappeared, with 7.7% of workers in industry being unionized, compared to 6.1% for the whole of the private sector.

Moreover, over the past decade, while manufacturing has recovered some of the jobs lost to trade and the Great Recession, most of these were not union jobs. From the trough of the 2010 recession to 2021, the manufacturing sector has created more than 800,000 jobs. However, the number of union members in the manufacturing sector fell by 400,000 during this period.

This means that winning back manufacturing jobs in China or other countries is unlikely to produce substantial gains for ordinary workers. The jobs we get back are unlikely to pay a substantial wage premium over other jobs in the economy, and they are unlikely to be union jobs.

Attack policies that redistribute upwards

This is why Stryker’s agenda offers little real hope for the working class, however they vote. On the other hand, today’s inflation should show us very directly how attacking the policies that redistribute so much income upwards would help the working class.

The basic story is simple: policies that give more money to people at the top are inflationary. The fact that we structured our patent rules and our pandemic documents to create five Moderna billionaires, and many other very wealthy people at Moderna and other pharmaceutical companies, meant that we had people at the top who spent more on housing, cars, vacations and other items. which increased the demand in the economy. Just as it can be inflationary when the government sends people $2,000 checks and they spend them, it can be inflationary when the government transfers hundreds of billions of dollars a year to people in a position to benefit from the monopolies of patents he granted.

Likewise, the fact that our doctors earn more than twice as much as their counterparts in other rich countries, because we protect them from the kind of competition to which we subject our manufacturing workers, means that we have close to a million doctors with the equivalent of $150,000 government checks each year.[2] The same goes for dentists, lawyers and other high-level professionals whom our politicians seek to protect from competition rather than seek economic efficiency.

We are also funneling tens of billions of dollars upwards to CEOs and other senior corporate executives through the corrupt corporate governance structure we have instituted. A recent study surveyed corporate executives and found that the vast majority didn’t even see it as their duty to contain CEO pay. Instead, they viewed their role as supporting senior management.

In this context, it’s no surprise that even mediocre CEOs can make tens of millions of dollars a year. And it’s not just the CEO. If the CEO gets $20 million, the CFO can get $10-12 million, and even third-level executives can get $2-3 million. All of this is inflationary. Again, this has the same impact on the economy as the government sending checks of this size to senior executives.

To help the working class attack upward redistribution

There are other ways the economy has been structured to give more money to those at the top, at the expense of the working class. (See Rigged: how globalization and the rules of the modern economy have been structured to make the rich richer [it’s free].) But the point here must be clear, if we are to help the working class, rather than simply win their votes, we must pursue policies that reverse redistribution upwards, not promise the return of manufacturing jobs that don’t ‘offer more salary premium.

It can be done, but it requires us to think a little differently. For example, instead of just handing out tens of billions of dollars in grants to the semiconductor industry, we could say that a condition of getting the money is that publicly funded research be in the public domain. This means that chips and other research products would be much cheaper.

We could and should do the same with prescription drugs, saving us hundreds of billions of dollars a year in drug expenditures. (Up to four times the food stamp budget.) We could also change corporate governance rules to make it harder for incompetent CEOs to pocket tens of millions. And, we could seek to reduce the massive waste in our financial sector that supports many of the wealthiest people in the economy.

Either way, Stryker is right that Democrats must pursue policies to win back the working class. It’s necessary both to win elections and because it’s the right thing to do. Unfortunately, the policies he advocates will not help the working class. It may be painful, but we badly need some new thinking here.

[1] A more comprehensive comparison needs to include non-wage compensation and also look at the specific demographics of manufacturing workers versus the overall workforce. That might still leave some bounty, but almost certainly a very small one.

[2] This is an average, lower paid family doctors and other specialists do not earn much more than their counterparts in other countries.

Comments are closed.