Bye-bye American pie

First, the good news. The economic pie is growing again. Growth in the fourth quarter last year hit 3 percent on an annualized rate. February's 227,000 net new jobs marks the third month in a row of job gains well in excess of 200,000.

Here's the bad news. The share of growth going to American workers is at a record low.


Although the nation is now producing more goods and services than it did before the slump began in 2007, we're doing it with 6 million fewer people.

Companies have been able to boost profits mainly by slashing costs. Payrolls are their biggest cost. They've been cutting payrolls not only by outsourcing abroad but by replacing people with computers, software applications and the Internet.


In theory this should be a huge plus. We can produce more and have more time off. But as Tonto asked the Lone Ranger, "Who's 'we,' Kemosabe?"

True, some of the productivity gains have been widely spread in the form of lower prices and higher value. (My 3-year-old granddaughter gets more out of an iPhone in five minutes than my 98-year-old father ever got out of reading the daily paper.) But most of the gains are distributed narrowly in the form of higher profits to owners and fat compensation packages to the "talent."

The share going to everyone else in the form of wages and salaries is now the smallest since the government began keeping track in 1947. If the trend continues, inequality will become ever more extreme.

We'll also face chronically insufficient demand for what the economy can now produce. The rich save more of their earnings than everyone else. And middle- and lower-income families -- with fewer jobs or lower wages -- don't have the purchasing power to keep the economy going at full tilt.

A far smaller share of working-age Americans is now employed (58.6 percent) than was employed five years ago (63.3 percent). Today's employment-to-population ratio isn't much higher than it was at its lowest point last summer, when it dropped to 58.2 percent.

The major driver of the U.S. economy hasn't been consumer spending. It's been businesses buying technology and rebuilding depleted inventories. But businesses won't continue to spend and invest unless consumers start buying, big-time. Yet how can consumers do this when so few of the economic gains are going to them?

This is the central paradox at the heart of the American economy today. If it's not resolved, the jobs recovery will stall, as it did last spring.

A year ago, remember, we had another three-month run of good job numbers. Last February, March and April saw net gains of more than 200,000 jobs a month. But that job boomlet abruptly ended.

At the time, most observers blamed the stall on external events -- the Japanese earthquake, Europe's gathering debt woes, and higher gas prices. In reality, it stalled because of the shallow pockets of American consumers. Another stall this time might be blamed on any number of external events -- slower growth in China and India, the unraveling of Europe's debt-crisis deal, and higher gas prices. But if another stall occurs, the real reason will be that Americans once again ran out of money.

While productivity gains are indubitably good, the real challenge ahead is to distribute those gains more widely.

One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.

We also need better schools (from early childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.


Finally, the benefits of the productivity revolution should be turned into more abundant public goods -- cleaner air and water, better parks and recreation, improved public health, and better public transit.

Regressive right-wingers want Americans to believe we've been living beyond our means and can no longer afford to do any of these things.

The truth is just the reverse. Most Americans' means haven't kept up with what the economy could provide if productivity gains were more widely shared.

Regressives growl about America's borrowing and tut-tut about future federal budget deficits. The reality is that the world is willing to lend us vast amounts of money because we're so productive. And productivity gains are making us ever more so.

Get it? The American pie is growing again, but most Americans aren't getting much of a slice. Nothing imperils our economic future as much as this lopsidedness.

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of "Aftershock: The Next Economy and America's Future." He blogs at www.robertreich.org.

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