An EU-Digest special report on the US electionsInternational trade accounts for only a small share of growing income inequality and labor-market displacement in the United States says Robert Lawrence of the Peterson Institute of International Economics in his latest book (Blue Collar Blues) as he "deconstructs" the gap in real blue-collar wages and labor productivity growth between 1981 and 2006. In this book he also estimates how much higher these wages might have been had income growth been distributed proportionately and how much of the gap is due to measurement and technical factors about which little can be done. While increased trade with developing countries may have played some part in causing greater inequality in the 1980s, surprisingly, over the past decade the impact of such trade on inequality has been relatively small. Many imports are no longer produced in the United States, and US goods and services that do compete with imports are not particularly intensive in unskilled labor. Rising income inequality and slow real wage growth since 2000 reflect strong profit growth, much of which may be cyclical, and dramatic income gains for the top 1 percent of wage earners, a development that is more closely related to asset-market performance and technological and institutional innovations rather than conventional trade in goods and services. The minor role of trade, therefore, suggests that any policy that focuses narrowly on trade to deal with wage inequality and job loss is likely to be ineffective. Instead Lawrence says, policymakers should (a) use the tax system to improve income distribution and (b) implement adjustment policies to deal more generally with worker and community dislocation. Republicans have failed to do so as the gap between rich and poor in America widened to the point of no return during their "Government watch".
It seems America isn't just divided along political lines. We see a middle class getting squeezed smaller and smaller, on one hand by astronomical health care costs and a soft economy, and on the other by rapidly increasing excess at the top tiers of society? In 2000, there were 7,000 American households worth $100 million or more; in 2003, there were 10,000. Today, researchers estimate that there are between 14,000 or 15,000 -- double what it was at the beginning of the millennium. By 2004, the richest one percent of Americans were earning more than the total national income of France or Italy.While the privileged classes have always been with us, are they becoming increasingly insulated by their wealth, complete with personal staffs, private jets, elite clubs and other badges of material success? What does this mean for consumption of natural resources, one of the biggest driving factors of damage to the environment? If excess becomes increasingly seen as the norm, not only can that drive the wealthy to devour more consumer goods, while taking increasingly frequent and opulent vacations (read: carbon emissions), but it could also spur those in lower classes to try to emulate their financial betters. Or will those who inherit wealth rise to the challenges before them and invest heavily in charitable and green causes? Unfortunately, with the exception of Bill Gates and Warren Buffett, who have made sure their children are well provided for, but will not inherit unimaginable wealth, research shows lower classes tend to be far more generous in relative terms of donating their time, energy and money to charitable, useful and productive causes. Will it lead to more laziness and apathy in the face of global problems by the US society?
Historically situations like this have been the cause of decay and popular revolution. The Roman Empire, The Ottoman Empire, France under Louis XIV, and the Weimar Republic are proof of this. Could a revolution be in the making for the US?
Labels: Economic Crises, Trade, US, US elections
