The ‘90s Boom Unmasked: It’s a Wage Freeze

You can’t say that crisis doesn’t heighten one’s sense of paradox. For a while there, it looked as though the stability of the world’s stock markets was in the hands of a bunch of elderly communists in Beijing, debating how far they should go in unpinning Hong Kong’s exchange rate. There’s also nothing like a crisis to strengthen people’s insistence that nothing is seriously awry, that what they reverently term “the fundamentals” are all in sound working order, that the dizzying drop in stock values was merely the consequence of alien turbulence in the Asian markets.

Now, it doesn’t require advanced training in economics to see that U.S. stocks are vastly overvalued. One recent study by a London-based investment firm used Federal Reserve numbers to show that stock market values were running at a ratio of around 130% of underlying corporate net worth, higher than at any time since 1920 and twice the long-term average. It doesn’t require any prodigious feat of memory either to see that the plunge on the New York stock exchange had far less to do with the Hong Kong markets than with what Federal Reserve Chairman Alan Greenspan said on Oct. 8 to the House Banking Committee: that the U.S. economy was running at an unsustainable rate of growth and that inflation was a certainty unless job growth slowed. Once the word “inflation” passes Greenspan’s lips, everyone knows perfectly well that the next shoe likely to drop is a hike in interest rates and economic slowdown.

Today, as the market seesaws, we should take another look at that momentous Greenspan testimony, essentially repeated Wednesday, and see what it imparts to us about the nature of the mighty boom that was under siege at the start of this week. In the old days, when someone like Greenspan talked about inflation, the next word out of his mouth would probably be “prices.” But Greenspan went right to his central concern, which was wages. He told the committee that the question was “when, not whether labor costs will escalate more rapidly” and that labor shortages “must eventually erode the current state of inflation quiescence.” So here was Greenspan’s message: If the economy goes on growing, then employers will have to pay more to attract workers, and to quell this unacceptable threat of inflation (and threat to profits), Greenspan will have to slow down the economy, create unemployment, cheapen the cost of labor and thus sustain profits.

So here we come upon a truth about one of the “fundamentals” of the U.S. economy. When Greenspan talks about wages rising too fast, what he really means is wages rising at all. In effect, Greenspan is saying that we have an economy that cannot absorb even the slightest wage increase.

Here, on data from the Bureau of Labor Statistics, is what has happened to real compensation (wages plus benefits) since the start of the Clinton presidency. In 1993, it fell by 0.4%; in 1994, it fell by 0.9%; in 1995, it fell by 0.3% and in 1996, it rose by 0.3%. By the end of 1996, a median income family of four had income 3% below that of a similar family in 1989, and just 1.6% above the income of such a family in 1973. And this has been a period when women have poured into the labor force to boost family earnings.

Some further chastening figures, courtesy of professor Robert Brenner of UCLA, who has been preparing a long study for New Left Review on what the real “fundamentals” actually tell us. Here’s what “stability” in wages means, beyond the bleak numbers cited above: About one-third of today’s labor force in the U.S. makes $15,000 or less. Brenner calls them the surplus army of the employed.

It’s true that the overall proportion of the population in the work force is high, but the proportion of people losing jobs is at an all-time high. Between 1992 and 1995, 15% of people holding jobs for more than a year lost those jobs, and on average made 14% less than their old wage if they found a new one. The rate of job loss in the 1990s boom is higher than in the recession years of the early 1980s or early 1990s. The great boom of the ‘90s is the slowest in the postwar period, bumping along at an average of 2.6% growth in gross domestic product between 1992 and 1996.

The numbers tell us that Greenspan and the system in whose service he toils know that the economy has to run slow, with tight money and austerity in the interest of budget balancing, because that’s the way to keep wages down. Another way is to cheapen the cost of labor by introducing workfare.

Here’s our fundamental truth: What’s described as a “boom” today is in fact a wage freeze. And the minute Greenspan says it looks as though the wage freeze won’t hold, the system goes into shock.