An interesting and long overdue column appeared today in the New York Times: http://www.nytimes.com/2015/05/17/upshot/dont-be-so-sure-the-economy-will-return-to-normal.html?mabReward=A4&action=click&pgtype=Homepage®ion=CColumn&module=Recommendation&src=rechp&WT.nav=RecEngine&_r=0&abt=0002&abg=1
In the article, Tyler Cowen, an Economics professor at George Mason University, describes the many changes in the American economy that may portend permanent reductions in the standard of living for the vast majority of Americans.
I have personally witnessed, since finishing a BA program in political economy at Northwestern University in 1973, the constant shift in political power and economic power from organized labor and its allies to multinational corporate interests and to the global financial center located on Wall Street. There are many reasons why this shift in political power and in economic power were likely inevitable; e.g. (1) the globalization of labor markets where truly multinational corporations shifted the labor component of their production to emerging market economies, (2) the global computer and communication revolutions that enabled call center workers in India to service business customers in the US and any other country, and (3) the automation of so many business processes and activities that has reduced the labor component required to produce goods and to provide services.
The abrupt reorganization of US corporations in the 1970s and in the 1980s, precipitated by the increasing competition from Japanese and European corporations and by the oil shocks of 1973 and 1978, were just the beginning of what has become an ongoing and pervasive transformation of the American economy in the past forty five years.
The transformation of the American economy in the past forty five years has caused, directly and indirectly, a corresponding transformation in all strata of American society. It is now a cliche for politicians of all major political parties to express their concern for “the withering Middle Class” in the United States.
The most recent economic shock that has impacted American demographics is the Financial Crisis of 2007-2008 and the Great Recession of 2008-2009. There were approximately ten million full time jobs lost during the Great Recession that paid a median wage of $18.00 per hour. Since the end of the Great Recession in 2009, the US economy has only added nine million full time jobs. The median wage of the jobs created since the end of the Great Recession is approximately $13.00 per hour. There are now 1.3 million fewer full time jobs in the US than there were in 2007, even though there are now 14 million more workers in the US now than there were in 2007.
The US commercial media has portrayed the reduction in wages and the reduction in the standard of living for American workers since 2007 as a temporary consequence of the Financial Crisis and of the Great Recession. Only recently have economists like Tyler Cowen, Thomas Piketty, et al been independently studying labor market data and overall US demographic data and coming to the conclusion that the economic trends and demographic trends in the US are reflecting a permanent reduction in the standard of living for the majority of American workers.
Historically, all great civilizations have evolved through a process of emergence, consolidation, expansion, decay and relative decline. Many historians in the 1970s thought that the US had peaked in political economic power in the decades after WW2. The Vietnam War, the OPEC oil embargoes, high inflation and general malaise in the 1970s contributed to the impression that the US was in a process of decline. Reagan’s “New Dawn in America” initiated a remarkable resurgence of American power and American dominance in global affairs in the 1980s and 1990s.
The series of US financial and economic crises in the past fifteen years, combined with the 09.11.2001 terrorist attacks, the multi trillion dollar Afghan invasion – occupation debacle, the multi trillion dollar Iraq invasion – occupation debacle, the 2011 Libyan Gadaffi decapitation debacle, the spread of radical Islam throughout the Islamic world, etc. once again create the impression that the US is in rapid political economic decline vis a vis the other regional powers in the world.
Samuel Huntington, in “The Clash of Civilizations”, written in the years after the end of the Cold War, discusses his perception that Western Civilization is in rapid decline compared to several other emerging regional powers. Huntington’s perception that Western Civilization is in rapid decline is so strongly felt and articulated in “The Clash of Civilizations” that he dedicates sections of the book to topics on what the “West” must do to save itself.
Perhaps it is actually a positive trend that economists like Tyler Cowen are openly writing about the decline in the standard of living for the majority of Americans. After all, the first step in responding to a profound issue in American political economy is the need to acknowledge that there is in fact a problem that needs to be studied, analyzed, modeled and remedied. Kudos also to the New York Times for providing Tyler Cowen a forum for his thoughts and analysis.