What's Happening with Real Wages

That's the question isn't it? Why have real wages stagnated since 1973? A lot of people tend to blame the Reagan years and the policy of "trickle down" economics but as you can see from the graph the stagnation and decline started well before Reagan. Not that Reagan was a friend to the working man.

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One of the biggest factors in the destruction of real wages was the remedy for the inflation of the 70's. Paul Volker's hyper interest rates that shuttered many manufacturers taking good paying skilled labor jobs with them. The weakened US worker was no match for the Voodoo economic model of Reagan which was based on a supply side theory that said everyone benefits when the rich get richer. The rising tide floats all boats theory. Unfortunately the majority of people were never given or put into a boat.

It was great for Wall Street because the rising gap in wages fed profits on one side and debt on the other. Companies used the stagnant wages to fuel productivity and the increase in debt fueled the credit industry. The share prices grew faster than the GDP. Fueling another debt orgy when investors snapped up shares on credit.

Nobody questioned the sanity of a consumer economy (the US GDP is 70% consumer spending) where the consumers were not paid enough to actually buy the products they sold. They didn't manufacture them anymore the manufacturing was outsourced by the demands of the Wall Street analysts to trim labor expenses to fuel profits. Too bad they didn't outsource the CEO's or their own jobs.

People were now working in the new service industry and couldn't buy the products they sold without using credit, i.e. sinking deeper into debt. The economy grew because the new financial services industry made credit easy. People augmented their stagnant wages with debt. They were even told to go buy, remember Bush after 9/11? The entire consumer industry was constructed to enable people to continue to buy the products they wanted and needed using easy credit. What would have happened if they didn't? Many would be homeless today. That's what happens when wages don't keep up with the cost of living. Workers were not willing to see their living standards drop year by year in the name of corporate profits and outrageous CEO pay.

Workers were given only one option, acquire debt just to maintain the standard of living you had last year. Everyone knows that this is unsustainable. Everyone outside of the Federal Reserve, the banking industry, Wall Street, and the government it seems. When profits grow faster than real productivity gains, when real wages trail productivity, when debt is used to augment wages a bubble is generated and all bubbles burst. This should once and for all drive a stake in the heart of the Voodoo model of 'trickle down' supply side economics.

To be honest the current implosion of the banking sector isn't entirely due to the debt used to augment wages. At some point the banks, hedge funds and other financial industries decided that that debt bubble was growing too slowly to satisfy the demand for Wall Street quarterly profit growth. They tuned to derivatives to increase profits. They packed up the workers debts and sold those overseas then gave workers more credit. Wrapped the entire package in even more derivatives.

When the bubble finally burst the financial industry didn't do what it requires it's customers to do, pay up. It held a gun to the government's head and required the taxpayers to fill the void left by the bubble with cash. The taxpayers are now paying off their debt in the form of a financial industry bailout. The problem is the workers debts are not disappearing, just their houses in foreclosure proceedings.

The money trail is too long and torturous for people to see the con. This was their money that they never received in wages, their debt that they had to take on that they are now paying off with their tax dollars with wages that are still the same or lower than when they started working. Yet their debts remain and the CEOs walk away with hundreds of millions.

History has a way of repeating itself. This was part of Nikolai Kondratieff's long wave theory. The Kondratieff wave cycle is about the length of a human life span because the next generation of people would repeat the same mistakes the previous generation made. The mistakes maybe updated for the times with new technologies but the results would be the same, the 'Kondratieff winter' i.e. a Great Depression.

Mark Twain was quite correct when he said "History doesn't repeat itself, but it does rhyme."