Jared Bernstein’s recent article about the existence of two U.S. economies presents data showing the incongruence between corporate profit and (middle–class) compensation—the former with a steady increasing trend and the latter a steady decreasing trend. These trends are not 2008 recession era trends they have been evident for decades. The conclusion drawn from these is that America has two economies. Perhaps we should think a bit more critically about this.
If we look deeply into the underlying assumptions upon which the economic system rests, we will see that the effects we are experiencing are in fact a direct result of the enactment of these assumptions. Strip away all the sophisticated financial and economic leaves and branches and what is left will be the root from which all other things emerge. As Bernstein noted, “what with high unemployment and weak middle-class earnings, along with solid corporate profits, one assumes that after taking a hit in the downturn, wealth accumulation is back on track as it were.” What this speaks to is the underlying assumptions upon which the economic system rests are very much operative.
As explained in Revenue Falls but Profits Soar corporate managers are simply exploiting those in the workforce, playing on the fear that many have in light of the persistent high unemployment. Why are they doing this? Well according to the precepts of our economic system, everyone is to pursue the maximization of his/her material self-interest. Why should we do this? Again, according to the principles underlying the system, if everyone seeks his/her own self-interest society will be wealthier. This unfortunately is a logical fallacy.
Clearly we do have a wealthy society. If you doubt this all you have to do is look at the growth in wealth among the top 1% of households. Unfettered self-interest does in deed create wealth. Unfortunately it also creates tremendous inequality. Winning in a competitive limited resource environment is auto-correlated—trickle-down doesn’t! You see a self-interest seeking materialist can never have enough.
So it is not that we have two economies it is that we have one economic system that is (by its very design) bisecting society.
[...] As Wang and Murnighan noted “the negative social consequences of greed focus primarily on its uneven distribution of resources” and the growing gap in income inequality in the U.S. is a case in point. In the period between the 1950’s and 1960’s CEO compensation was about 25 times that of the average worker. Today it is 340 times that of the average worker! As a result of the income trend lines going in quite different directions, some argue that we have two economies. [...]