The usefulness – of utter lack thereof – of tracking the nation’s average wage was demonstrated in a big way Tuesday night by a little guy – former Secretary of Labor Robert Reich.
“If anyone brings up averages when they’re talking about the economy, watch your wallet,” warned Reich, speaking to a packed crowd at Sibley Auditorium on the UC Berkeley campus. “Shaquille O’Neal and I have an average height of 6-foot-1. Averages don’t tell you what’s going on with the little guy.”
Reich (who, for point of illumination, has a stature closer resembling a jockey’s than an NBA center’s) pointed out that the skyrocketing average wage in today’s economy is largely due to the huge successes of those on the top of the financial pyramid. The secretary of labor in Bill Clinton’s first administration maintained that median wages for the middle class and poor had elevated only slightly, with that demographic working much longer, harder hours than in previous years.
That striking point was used to bolster Reich’s main claim – that the nation’s macroeconomic and social policies are inexorably intertwined, with a particular emphasis on the activities of the Federal Reserve Board.
“We tend not to think about what the Federal Reserve Board Open Market Committee does. We assign their role to the business pages of newspapers,” said Reich, now a professor of social and economic policy at Brandeis University’s Heller Graduate School. “But what you must understand is, in this economy this is the most important group in Washington and perhaps the most important group in the nation in terms of governance of the country. It’s not an exaggeration to say that (Reserve Board Chairman) Alan Greenspan is, in terms of the economy, the most powerful man in the nation, and the singularly most important person in the world economy.”
The Fed has raised short-term interest rates five times since June, and is meeting again next week (where popular opinion states rates will be hiked an additional one-half percentage point).
Reich claims this action – undertaken to keep the economy from outpacing itself by slowing it, consequently preventing inflation (and raising unemployment) – hurts the Americans who are most vulnerable.
“If The Fed slows down the economy, unemployment starts to creep upwards,” said Reich. “People who are societally excluded will be the first to lose their jobs or any gains made in terms of earnings if they keep their jobs. Those at the end of the job queue will be the first to be laid off when unemployment rises. And, let me emphasize, they are also going to pay more as a percent of income in interest rate costs, borrowing costs. Poor people are in debt more than those who are wealthy. You don’t have to be a rocket scientist to figure that out.”
Reich also emphasized that a societal plan to preserve the economy by hiking unemployment coupled with the dismantling of the welfare system could deal a crippling blow to the nation’s working poor.
The author of the best-selling book “Locked in the Cabinet” contended that economic modes equating low unemployment with impending inflation are outmoded, due to increased price competition and better worker productivity via technological improvements. Reich pointed out that the nation’s unemployment rate stands at 3.9 percent, and has stood at below 4.5 percent with “no signs of accelerated inflation.”
With this in mind, Reich emphasized that pre-emptive steps to curb inflation by raising interest rates would be a step in the wrong direction.
“I submit the Federal Reserve Board should wait until it actually sees the whites of the eyes of accelerated inflation before it raises interest rates any further,” said Reich. “Because, my friends, this economy is different than the textbooks of the ‘70s, ‘80s and even early ‘90s. When I went to Washington in 1993, the assumption was you couldn’t get below 6 percent (unemployment) without accelerated inflation. That was the so-called natural rate of unemployment.
“The reason it’s now possible to run the economy with much lower rates of unemployment and at a faster growth rate is because of the new technology,” continued Reich. “It’s a new economy. It allows us to grow a tighter labor market than ever before. I don’t know how low unemployment can get without accelerated inflation. Let’s try to get unemployment as low as we can, and as much rapid growth as we can, so we can help out the good old working class and poor who haven’t gotten much out of this recovery. Let us not raise interest