Reports from the Economic Front

a blog by Marty Hart-Landsberg

US Workers And Their Decades Of Lost Earnings

It happened gradually, but thanks to the US media, economic news has largely been reduced to stock market reporting.  Want to know how the economy is doing?  Check the S&P 500 Index.  Want to know whether the latest Trump proposal is good or bad?  Check the S&P 500 Index.

And perhaps even more amazingly, the media has also transformed the stock market into a new superhero.  In good times it roars or soars.  In bad time it weathers the storm, regroups, and battles back to defend our collective well-being.

Somehow real economic processes and even more importantly the actual economic well-being of people has largely been shoved to the background.  Largely lost from view is the fact that most workers have suffered lost decades of earnings.

The Stock Market

As we see below the stock market, represented by the S&P 500, has enjoyed quite a run over the last few decades.

Left out of the celebration is the fact that few Americans own stock; in fact more than half of all US households own no stock at all, even indirectly through pension plans or mutual funds.

According to NYU economist Edward N. Wolff, as shown below, the wealthiest 10 percent of US households owned 84 percent of all stocks, by value, in 2016.  That is up from 77 percent in 2001.  By contrast, the bottom 60 percent of households owned just 1.8 percent of total stock value.

As the Washington Post explains:

For the top 20 percent of households, the day-to-day movements of the Dow Jones reflect real changes in their net worth and financial health. Big shifts in the market might mean the difference between retiring today and retiring five years from now, or between buying that bungalow right on the beach and buying the one a few blocks away.

But for many of the remaining 80 percent of American families, who collectively own less than 7 percent of the stock market even when you factor in their retirement accounts, the Dow and the S&P 500 are little more than numeric abstractions.

Lost Decades

The stock market’s rise and our growing identification with it tends to hide what is really happening to people.  Here, at a ground level, the sad reality is that most workers have experienced lost decades of earnings.

The chart below, taken from an analysis by Jill Mislinski for Advisor Perspectives, shows the real average hourly earnings of production and nonsupervisory employees in the private sector, a category that includes close to 85 percent of all private sector employees.  As we can see, real average hourly earnings in January 2018 are about what they were in 1978, four decades earlier, and considerably below their 1973 peak, and that is after a sustained rise.  A lot of income was lost over that period.

The loss of income is even greater when we take into account the gradual, long term decline in average weekly hours, illustrated next.

Putting the two series together gives us the trend in average real weekly earnings.  As we can see, despite decades of growth in the economy and stock market, real average weekly earnings of production and nonsupervisory employees have a long way to go to compensate for decades of decline and stagnation.

Jill Mislinksi offers the following perspective on this trend in average weekly earnings:

If we multiply the hypothetical weekly earnings by 50, we get an annual figure of $37,531. That’s a 13.5% decline from the similarly calculated real peak in October 1972. In the charts above, we’ve highlighted the presidencies during this time frame. Our purpose is not necessarily to suggest political responsibility, but rather to offer some food for thought. We will point out that the so-called supply-side economics popularized during the Reagan administration (aka “trickle-down” economics), wasn’t very friendly to production and nonsupervisory employees.


One small way we can help speed needed change is to challenge the media embrace of the stock market as our representative economic indicator and demand that economic reporting focus on meaningful realities for the great majority.


Globalization and US Labor’s Falling Share Of National Output

As the Trump administration pushes ahead with its effort to renegotiate NAFTA, we must never miss an opportunity to remind people that the globalization of US economic activity has, by design, shifted the balance of class power away from working people.  A commonly cited indicator of class power is labor’s share of output (or income), which, as shown below, dramatically fell after the turn of the 21st century after decades of slow decline.

Michael W. L. Elsby, Bart Hobijn, and Aysegül Sahin, writing in the Fall 2013 Brookings Papers on Economic Activity, tested several hypotheses about the cause of labor’s declining share of output.  They concluded, based on their econometric work, that “increases in the import exposure of U.S. businesses” was key, accounting for approximately 85 percent of the decline in the U.S. payroll share over the period 1987 to 2011.  This finding led them to suggest “that a particularly fruitful avenue for future research will be to delve further into the causal channels that underlie this statistical relationship, in particular the possibility that the decline in the U.S. labor share was driven by the offshoring of the labor-intensive component of the U.S. supply chain.”

Labor’s share of income

It is important to be clear about how the labor share is estimated and how well it captures class dynamics.  The starting point is simple: labor’s share of output is calculated by dividing the labor compensation earned during a given period by the economic output produced over the same period.  Things quickly get more complicated, however, because the labor compensation used in the calculation is actually the sum of the labor earnings of two different groups of workers: those who work for others and those who work for themselves.

The compensation of the first group includes the sum of all employee pay and benefits: wages and salaries; commissions; tips; bonuses; severance payments; early retirement buyout payments; exercised stock options; and employer contributions to employee pension and insurance funds, and to government social insurance.  Calculating the employee share of output, known as the payroll share, is relative straightforward thanks to employer fillings.

Things are not so simple when it comes to the second group, since their earnings reflect “both returns to their work effort and returns to the business property they invested in” and there is no simple way to separate their earnings into those two components.  The Bureau of Labor Statistics (BLS) handles this problem by assuming that the self-employed receive an hourly labor compensation similar to that earned by employees who work in the same sector of the economy.

The figure below, from the Brookings Papers article, shows the division of the labor share into its two component parts, the payroll share and the self-employed share.  As we can see, the payroll share is significantly greater than the self-employed share.  In fact, the share of hours of the self-employed in total work hours “has declined steadily from about 14 percent in 1948 to 8.5 percent in 2012.”  However, as Elsby, Hobijn, and Sahin point out, “In spite of the relatively small share of self-employment hours, the treatment of self-employment income plays an important role in the recent behavior of the evolution of the labor share.”

A number of economists have raised concerns about the methodology used by the BLS to divide the compensation of the self-employed into its labor and capital returns components.  One example: the BLS methodology ends up crediting the self-employed with more labor compensation than their total reported earnings for much of the 1980s and early 1990s, a highly unlikely outcome.

Alternative methodologies have been suggested, and the authors of the Brookings Papers article calculate labor’s share using the two most often cited.  The one they call the “asset basis” assumes that the return on self-employed capital is the same as the return on capital in the non-farm business sector, with the remaining earnings credited to labor.  The other, called the “economy-wide basis,” assumes that the division between labor compensation and capital income is the same for the self-employed as it is for the non-farm business sector.  As we see below, the two alternatives generally produce labor share trends that are relatively close together, and significantly lower than that published by the Bureau of Labor Statistics from the start of the series until the late 1990s, when all three series generally converge.

Because of its methodological shortcoming, Elsby, Hobijn, and Sahin prefer either of the two alternative measures, which leads them to the conclusion that use of the BLS series overstates the actual decline in the labor share.  As they explain:

The upshot of these comparisons is that around one third of the decline in the headline measure of labor’s share appears to be a by-product of the methods employed by the BLS to impute the labor income of the self-employed. Alternative measures that have less extreme implications regarding the return to capital among proprietors are more consistent with one another and indicate a more modest decline.

The fact that the difference between the BLS and the alternative measures of labor’s share largely disappeared beginning in the late 1990s suggests that the average hourly earnings of the self-employed have grown much faster than that of the employed.  This, in turn, suggests a significant transformation in the make-up of the self-employed; in particular an increase in the number of individuals engaged in highly lucrative professional work.  In this regard it is important to recall that labor compensation includes not just wage and salary earnings but also things like bonuses and stock options, rewards that became increasingly popular for a select few starting in the late 1990s thanks to the run-up in the stock market.

And in fact, this transformation is confirmed by the authors, who disaggregated the structure of the labor share for employees and total earnings for the self-employed.  The results are illustrated in the following figure, which shows that “the share of income accounted for by both payroll wages and salaries and by proprietors’ income [the sum of their labor and nonlabor earnings] has been buoyed up since the 1980s by substantial rises in the shares accounted for by the very top fractiles of households in the United States.”

As the authors point out:

This rise in inequality is even more striking for proprietors’ income than it is for payroll income. In 1948 the bottom 90 percent of employees earned 75 percent of payroll compensation. By 2010 this had declined to 54 percent. For entrepreneurial income, however, this fraction declined from 42 percent in 1948 to 14 percent in 2010. Even more starkly, over the same period the share of proprietors’ income accounted for by the bottom 99 percent fell from 74 percent to 45 percent. This suggests that the sharp rise in the average hourly compensation of proprietors relative to the payroll-employed since the late 1980s is related to substantial increases in income inequality among proprietors that dominate even the considerable rise in inequality witnessed among the payroll-employed. Moreover, this has been driven by extreme rises in proprietors’ income at the very top of the income distribution—the top 1 percent in particular.

In short, there are a lot of moving parts to the calculation of and evaluation of trends in the labor share of income.  The BLS measure may have overstated the decline, but the explosion of inequality means that the measure’s two components mask an even greater fall in the share of income going to the great majority of working people.

Globalization and the decline in the payroll share of output

Although the labor share is the “headline” statistic, the authors decided to narrow their focus to the payroll share.  As we saw above, it is no simple matter to determine the labor compensation of the self-employed.  In contrast, the payroll share is relatively easy to measure and, as a bonus, can be disaggregated by industry.  Moreover, it is the largest component of the labor share, which means that its movement is most responsible for changes in the overall labor share.

Elsby, Hobijn, and Sahin begin with a standard neoclassical aggregate production model and the most common neoclassical explanations for the decline, which rest on investment and technological change: the growth in the capital/labor ratio and skill-biased technical change.  The basic neoclassical argument is that growing investment shifts income away from labor in the first case and unskilled workers in the second.  However, in both cases the authors found that the movement in relevant variables was not consistent with the actual movement in the payroll share.

Recognizing the limitations inherent in a simple aggregate production function model of the economy, the authors decided to take advantage of their industry data to see whether a more micro/industry perspective yielded better results. More specifically, they econometrically tested whether investment specific technological change, declines in unionization, or increases in import competition can explain the decline in the payroll share.  They found that “Our data yield one robust correlation: that declines in payroll shares are more severe in industries that face larger increases in competitive pressures from imports.”

In the case of investment specific technical change, the authors looked to see whether those industries which enjoyed the lowest price increases for investment goods had the largest declines in payroll share, with the assumption being that these industries would be the most likely to replace workers with capital.  In fact, it turned out that there was a weak negative relationship between the change in equipment prices and the change in payroll shares across industries, the opposite of what was expected “if capital deepening due to the decline in price of equipment were the driving force of the decline in the payroll share.”  This result reinforced the conclusion from their aggregate analysis that investment activity does not explain the decline in the payroll share of output.

The test of unionization was more straight forward.  The authors looked to see if there was a positive relationship between changes in union density in an industry and changes in payroll shares.  While they did find “a positive correlation between the change in unionization and the change in payroll shares across industries,” the relationship was weak. “The weighted least squares regression indicates that cross-industry variation in changes in unionization rates explains less than 5 percent of the variation in changes in payroll shares across industries.”

Last was the test of globalization, or more specifically a test of whether the import-caused hollowing out of US industry was a primary cause of the decline in the payroll share.  Elsby, Hobijn, and Sahin assumed two possible channels for a rise in imports to cause a fall in the payroll share.  The first involved trade-generated capital deepening.  In this case, the outsourcing of production by US firms would lead to a reduction in labor, a rise in the capital-labor ratio, and a decline in the payroll share of income.  However, as the authors noted, they had already tested capital deepening as a potential cause of the decline and found no support for the hypothesis.

The second trade channel relied on wage differentials rather than shifts in capital intensity.  Industries with high labor shares likely have high labor costs, making them vulnerable to import competition.  The greater the competition the more likely firms in these industries were to take actions to lower those costs, including offshoring segments of their production process, thereby producing a decline in their payroll share.

The authors pursued this possibility by computing the import exposure of each industry.  They did so by asking the following question:

If the United States were to produce domestically all the goods that it imports, how much additional value added would each industry have to produce? For example, if all U.S. imports of clothes were produced domestically, how much would value added increase in sectors like retail, textile manufacturing, and so on.

To be able to calculate this measure of import exposure we use the annual input-output matrices that are available for the years 1993 to 2010 from the BLS. Import exposure is expressed as the percentage increase in value added needed to satisfy U.S. final demand if the United States would produce all its imports domestically.

The figure below shows the relationship between changes in import exposure and changes in the payroll share for each industry.  As we can see, import exposure increased for almost all industries—reflecting the growing hollowing out of the US economy–and the larger the exposure the greater the decline in payroll share.  A simple regression showed that the import exposure variable was significant in explaining changes in the payroll share, with cross-industry variation in changes in import exposure explaining 22 percent of the variation in changes in payroll share.

The authors then ran a regression which included all three possible explanations for the decline in the payroll share.  The globalization variable remained highly significant and was the only variable to do so.  With the import exposure valuable included in the regression, the unionization variable became insignificant.  “This suggests that those sectors where deunionization was most prevalent are also sectors that saw the biggest increase in import exposure.”

Elsby, Hobijn, and Sahin conclude:

our results indicate a cross industry link between the increases in import exposure and the decline in the labor share.  While this result cannot be interpreted as causal, it is worth noting that the statistical relationship between import exposure and payroll shares across industries is large enough to account for a substantial fraction of the aggregate trend decline in the labor share. In particular, aggregating the results of the weighted-least-squares regression across industries suggests that increases in the import exposure of U.S. businesses can account for 3.3 percentage points of the 3.9 percentage point decline in the U.S. payroll share over the past quarter century.


We know that trade agreements are about a lot more than lowering tariffs to promote trade.  Foremost, they are about strengthening corporate power and profitability.  And despite mainstream economic theorizing to the contrary, there is strong evidence that these corporate gains come, as designed, at the expense of majority well-being.

Studies of the effect on US workers from imports from China (see Autor, Dorn, and Hanson)  and Mexico (see Hakobyan and McLaren), most of which are produced within US transnational corporate-controlled production networks, show that US workers pay a steep price in terms of job loss and lost earnings from corporate driven globalization.  And, as we have seen, Elsby, Hobijn, and Sahin’s work strongly suggests that this process is also the main factor behind the decline in the payroll share of output.  This is class power at work–unfortunately theirs, not ours.

North Korea in the Age of Trump

On January 23, Hyun Lee, the managing editor of ZoominKorea, and I spoke at a UCLA Center for Korean Studies sponsored event titled “North Korea in the Age of Trump.”  I went first, offering a critical perspective on US foreign policy towards Korea, North and South.  Hyun Lee then talked about the importance of Science and Technology in North Korea.

Both presentations can be viewed here:

Tragically the US media and government appear more eager for war than peace on the Korean Peninsula.  This reality was underscored by their negative reactions to Kim Jong-un’s New Year’s declaration, which included a call for talks between North Korea and South Korea and acceptance of South Korea’s invitation to participate in the Winter Olympics being held in South Korea.

Here are some examples:

Choe Sang-Hun and David Sanger, writing in the New York Times, quickly declared that Kim Jong-un’s welcoming of renewed contacts with South Korea represented little more than “a canny new strategy” designed to divide South Korea from the US and weaken the alliance.  They raised the “fear that if dialogue on the Korean Peninsula creates a temporary reprieve from tensions, the enforcement of sanctions could also be relaxed.

Scott Snyder, senior fellow for Korea studies and director of the program on U.S.-Korea policy at the Council on Foreign Relations, struck a similar tone in an article published in the Atlantic magazine.  Considering the possibility of talks to be a trap for South Korea, he ended his article expressing fear that South Korean President Moon could be forced into concessions that “might weaken South Korea’s alliance with the US.”

A few days later, Robert Litwak, a senior vice president at the Woodrow Wilson Center for International Scholars, wrote in a New York Times op-ed that “Washington and Seoul should not take Mr. Kim’s bait.  Instead, the North Korean offer should be put to the diplomatic test through a united Washington-Seoul front.”

A New York Times article quoted Daniel R. Russel, a former assistant Secretary of State for East Asian and Pacific Affairs in the Obama administration, as saying: “It is fine for the South Koreans to take the lead, but if they don’t have the U.S. behind them, they won’t get far with North Korea. And if the South Koreans are viewed as running off the leash, it will exacerbate tensions within the alliance.”

Heather Nauert, the US State Department’s spokesperson, made clear that the US is carefully watching South Korea.  “Our understanding,” she said, is that these talks…will be limited to conversations about the Olympics and perhaps some other domestic matters.”  South Korea isn’t “going to go off freelancing” she told the press.

The US ambassador to the UN, Nikki Haley, told journalists at the UN that “We won’t take any of the talks seriously if they don’t do something to ban all nuclear weapons in North Korea.”

And then, just as the talks were getting ready to begin on January 9, US officials let it be known to The Wall Street Journal that they were “quietly debating” the possibility of what they called a “bloody nose” tactic that would involve a “limited military strike” against North Korea’s nuclear and missiles sites without somehow setting off “an all-out war on the Korean Peninsula.”

And as a measure of just how seriously the US is considering such an action, President Trump recently withdrew his support for Victor Cha’s nomination to be the US ambassador to South Korea.  Although Cha advocates the strongest possible sanctions on North Korea, he lost his position because he expressed reservations about the wisdom of such a military strike.

The fact that North Koreans and South Koreans walked together under one flag in the opening ceremony of the Olympics does not mean that the danger of war has passed.  But it is a good sign.  We in the US need to do what we can to ensure that US government actions, including a new round of war games, do not throw up roadblocks to a process that needs to be encouraged.

Signs Of Economic Trouble Ahead

The current expansion has gone on for 102 months.  Only the expansions from March 1991 to March 2001 (120 months) and from February 1961 to December 1969 (106 months) are longer.  Unfortunately, growth during this expansion has been slow and the gains have largely gone to a very few.  And there are signs of economic trouble ahead.

The figure below shows that the rate of growth of GDP per capita during this expansion has been significantly below those of past expansions.

Weak business investment, as illustrated below, is one reason for the disappointing economic performance. 

Corporations have certainly made money during this expansion.  It is just that they have been more interested in using it to pay dividends and buyback their stock to push up share prices rather than spend it on new plant and equipment.  As Nomi Prins explains, and as illustrated in the next figure, “companies have been on a spree of buying their own stock, establishing a return to 2007-level stock buybacks.”

Not surprisingly, then, growth, as the next chart shows, has recently been driven by private consumption.

However, as we see below, for the last two years that consumption has not been supported by earnings.

Moreover, despite the length of the current expansion, median nominal wage growth not only remains low, it has begun to turn down. Thus, we are unlikely to see any significant boost in median earnings.

There is another reason to doubt that consumption can continue to grow at its current rate.  As the Wall Street Journal Daily Shot Brief notes:

While economists expect consumption to remain strong this year (helped in part by the new tax bill), it’s hard to see the US consumer staying this enthusiastic for too long. That’s because the savings rate as a percentage of disposable income is at a decade low.

At some point over the next year or two, perhaps triggered by interest rate hikes or a fall in investment due to a decline in the rate of profit, the expansion will end.  Majority living and working conditions, already under pressure, will then further deteriorate.  We face big challenges ahead.

Too Many Whites Are In Denial About The Extent Of Race-Based Economic Inequality

A recently published paper by three Yale scholars reveals “that Americans, on average, systematically overestimate the extent to which society has progressed toward racial economic equality, driven largely by overestimates of current racial equality.”

The authors based their conclusion on the results of three different studies.  Participants in all three studies were asked to estimate differences between average Black and White Americans in five areas at a point in time in the past and the present.  The areas and time points were:

(i) employer provided health care benefits in 1979/2010; (ii) hourly wages of college graduates in 1973/2015; (iii) hourly wages of high school graduates in 1973/2015; (iv) annual income in 1947/2013; and (v), accumulated wealth in 1983/2010. Participants considered an average White individual or family earning $100 US and were asked to estimate how much an average Black individual or family would earn using a scale that ranged from $0–$200 US. For the health care item, the question was framed in terms of families with health coverage, and participants indicated how many Black families would be covered if 100 similarly employed White families had coverage. Participants were reminded that an answer of 100 meant equality between Whites and Blacks.

Two of the three studies included a sample of White and Black participants drawn from the top (over $100,000 yearly income) and bottom (below $40,001) of the income distribution.  The third study included just White participants, also drawn from the two ends of the income distribution.

The following figure, taken from a New York Times review of the study’s results, shows the views of participants about current racial differences for four of the five survey areas.

As noted above, participants were asked how much they thought an average Black family or individual held in wealth or earned in income or received in wages, if the average White family or individual had $100 in wealth or received $100 in income or in wages.  Their estimates are shown in grey while the reality is shown in red.  As we can see, the general perception is that discrimination exists, but is relatively small.  As we can also see, the reality, especially with regards to wealth and income, is far worse.

Because the authors asked participants to do this thought experiment for a period in the past as well as in the present, they were also able to draw some conclusions about people’s sense of progress in fighting discrimination.  Their results:

confirmed our hypothesis that Americans, on average, misperceive the extent to which society has made progress toward racial economic equality . . . Indeed, participants overestimated racial economic progress by more than 20 points across all studies and all domains of progress.

They also found, again in line with another of their hypotheses, that high-income White participants were more likely to overestimate racial equality than were low-income White participants or Black participants of either income group.  More specifically, high-income White participants overestimated past as well as current racial equality relative to the other three groups.  In fact, “high-income White participants were actually the only subgroup to overestimate the extent of racial equality in the past.”

The New York Times article concludes:

Why would people get these questions so wrong — and consistently in the direction of too much optimism? (This study was also conducted after the 2016 election.) Blacks overestimated equality, too, but the biggest effects were among wealthy whites.

The researchers suspect that the answer in part has to do with how little exposure Americans have to people who are unlike them. Given how economically and racially segregated the country remains, many Americans, and especially wealthy whites, have little direct knowledge of what life looks like for families in other demographic groups.

We’re inclined, as well, to believe that society is fairer than it really is. The reality that it’s not — that even college-educated black workers earn about 20 percent less than college-educated white ones, for example — is uncomfortable for both blacks who’ve been harmed by that unfairness and whites who’ve benefited from it. . . .

The researchers found in some additional surveys that whites answer these questions more accurately when they’re first asked to consider an America where discrimination persists. If we want people to have a better understanding of racial inequality, this implies that the solution isn’t simply to parrot these statistics more widely. It’s to get Americans thinking more about the forces that underlie them, like continued discrimination in hiring, or disparities in mortgage lending.

Sadly, as this paper makes clear, too many people continue to believe the myth of American social progress.  It is a myth that needs to be challenged if we hope to build a powerful working class-based movement for social change.  This means we must continue to work to paint an accurate picture of the reality of racial discrimination and its terrible social consequences for Blacks and other people of color.  But, as noted above, we will greatly increase the effectiveness of this effort if we also help White workers understand the underlying class-driven economic dynamics that encourage racial divisions and, even more importantly, in whose interests they work.

Class, Race, and US Wealth Inequality

People tend to have a distorted picture of US capitalism’s operation, believing that the great majority of Americans are doing well, benefiting from the system’s long-term growth and profit generation.  Unfortunately, this is not true.  Median wealth has been declining, leaving growing numbers of working people increasingly vulnerable to the ups and downs of economic activity and poorly positioned to enjoy a secure retirement.  Moreover, this general trend masks a profound racial wealth divide, with people of color disproportionally suffering from a loss of wealth and insecurity.

A distorted picture of wealth inequality

In a 2011 article, based on 2005 national survey data, Michael I. Norton and Dan Ariely demonstrate how little Americans know about the extent of wealth inequality.  The figure below (labeled Fig. 2) shows the actual distribution of wealth in that year compared to what survey respondents thought it was, as well as their ideal wealth distribution.  As the authors explain:

respondents vastly underestimated the actual level of wealth inequality in the United States, believing that the wealthiest quintile held about 59% of the wealth when the actual number is closer to 84%. More interesting, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution, reporting a desire for the top quintile to own just 32% of the wealth. These desires for more equal distributions of wealth took the form of moving money from the top quintile to the bottom three quintiles, while leaving the second quintile unchanged, evincing a greater concern for the less fortunate than the more fortunate.

The next figure reveals that respondents tended to have remarkably similar perceptions of wealth distribution regardless of their income, political affiliation, or gender.  Moreover, all the groups embraced remarkably similar ideal distributions that were far more egalitarian than their estimated ones.

Capitalist wealth dynamics

Wealth inequality has only grown worse since 2005.  As I previously posted, in 2016, the top 10 percent of the population owned 77.1 percent of the nation’s wealth, while the bottom 10 percent owned -0.5 percent (they are net debtors).  Even these numbers understate the degree of wealth concentration: the top 1 percent actually owned 38.5 percent of the wealth, more than the bottom 90 percent combined. This was a sharp rise from the 29.9 percent share they held in 1989.

Perhaps more importantly, median household wealth is not only quite small–not nearly enough to provide financial stability and security–but is actually growing smaller over time.  In fact, median household wealth in 2016 was 8 percent below what it had been in 1998.


The racial wealth divide

Of course, not all families receive equal treatment or are given similar opportunities for advancement.  While US capitalism works to transfer wealth upwards to the very rich, it has disproportionately exploited families of color.  This is made clear by the results of a 2017 study titled The Road to Zero Wealth by Dedrick Asante-Muhammad, Chuck Collins, Josh Hoxie, and Emanuel Nieves.

As we saw above, median household wealth has been on the decline since 2007, despite the growth in overall economic activity and corporate profits.  The figure below shows median wealth trends for White, Black, and Latino households.

As of 2013, median White household wealth was less than it had been in 1989. However, the wealth decline has been far worse for Black and Latino families.  More specifically, as the authors write:

Since 1983, the respective wealth of Black and Latino families has plunged from $6,800 and $4,000 in 1983 to $1,700 and $2,000 in 2013. These figures exclude durable goods like automobiles and electronics, as these items depreciate quickly in value and do not hold the same liquidity, stability or appreciation of other financial assets like a savings account, a treasury bond or a home.

Education is supposed to be the great equalizer, with higher levels of education translating into more income, and then wealth.  But as we see in the figure below, the combination of class policies on top of a history of discrimination and exclusion has left families of color at a significant disadvantage. For example, the median wealth of a family of color with a head of household with 4 year degree is far less than the median wealth of a White family with a head of household with only a high school diploma/GED.

The authors have created their own measure of “middle class wealth,” which they define:

using median White household wealth since it encompasses the full potential of the nation’s wealth-building policies, which have historically excluded households of color. More specifically, we use median White wealth in 1983 ($102,200 in 2013 dollars) as the basis for developing an index that would encompass “middle-class wealth” because it establishes a baseline prior to when increases in wealth were concentrated in a small number of households. Using this approach and applying Pew Research Center’s broad definition of the middle class, this study defines “middle class wealth” as ranging from $68,000 to $204,000.

As we can see in the figure above, only Black and Latino households with an advanced degree make it into that range. Moreover, trends suggest that, without major changes in policy, we can expect further declines in median wealth for households of color.  In fact,

By 2020, if current trends continue as they have been, Black and Latino households at the median are on track to see their wealth decline by 17% and 12% from where they respectively stood in 2013. By then, median White households would see their wealth rise by an additional three percent over today’s levels. In other words, at a time when it’s projected that children of color will make up most of the children in the country, median White households are on track to own 86 and 68 times more wealth, respectively, than Black and Latino households. . . .

Looking beyond 2043, the situation for households of color looks even worse. . . .If unattended, trends at the median suggest Black household wealth will hit zero by 2053. In that same period, median White household wealth is expected to climb to $137,000. The situation isn’t much brighter for Latino households, whose median wealth is expected to reach zero by 2073, just two decades after Black wealth is projected to hit zero. . . . Wealth is an intergenerational asset—its benefits passed down from one generation to the next— and the consequences of these losses will reverberate deeply in the lives of the children and grandchildren of today’s people of color.

Of course, knowledge of the fact that capitalism’s growth largely benefits capitalists, and that people of color pay some of the greatest costs to sustain its forward motion, does not automatically lead to class solidarity and popular opposition to existing accumulation dynamics.  Still, such knowledge does, at a minimum, help people understand that the forces pressing down on them are not the result of individual failure or lack of effort, but rather have systemic roots.  And that is an important step in the right direction.

Taxes, Inequality, And Class Power

No doubt about it, the recently passed tax bill is terrible for working people.  But as Lance Taylor states in a blog post titled “Why Stopping Tax ‘Reform’ Won’t Stop Inequality”: “Inequality isn’t driven by taxes—its driven by the power of capital in relation to workers.”  Said differently we need to concentrate our efforts on shifting the balance of class power.  And that means, among other things, putting more of our energy into workplace organizing and revitalizing the trade union movement.

The rich really are different

Taylor uses the Palma ratio to highlight the growth of income inequality.  The measure, proposed by the Cambridge University economist Jose Gabriel Palma, is defined as the ratio of the average income of a wealthy group relative to the average income of a poorer group.  Taylor calculates Palma ratios “for the top one percent vs. households between the 61st and 99th percentiles of the size distribution (the ‘middle class’) and the sixty percent at the bottom.”

The first figure looks at Palma ratios for pre-tax income.  The second figure uses disposable or after-tax income.

In both figures we see growing ratios, which means that the top 1 percent is increasing its income faster than the other two groups, although the gains are not quite as large in the case of after-tax income, suggesting that taxes and transfers do make a small but real difference.

Be that as it may, the ratio of the top group’s after-tax income relative to Taylor’s middle group grew 3.85 percent per year over the period 1986 to 2014, while the ratio with the bottom group grew 3.54 percent a year.  As Taylor comments, “Such rising inequality is unprecedented. These rates are a full percentage point higher than output growth, and are not sustainable in the long run.”

What is also noteworthy is that the Palma growth rates for both the middle and bottom groups are quite close.  This is important because it shows that inequality is largely driven by the top earners pulling income from the rest of the population, rather than a widening income gap between Taylor’s middle and bottom groups.

An IMF study of the relationship between income inequality and labor market institutions in twenty developed capitalist countries over the period 1980 to 2011 came to a similar conclusion, although it focused on the top 10 percent rather than the top 1 percent. As Florence Jaumotte and Carolina Osorio Buitro, the authors of the study, explain (and illustrate in the figure below):

As with measures of income inequality, changes in the distribution of earnings indicate that inequality has risen owing largely to a concentration of earnings at the top of the distribution. Gross earnings differentials between the 9th and 5th deciles of the distribution have increased over four times as much as the differential between the 5th and 1st deciles. Moreover, data from the Luxembourg Income Survey on net income shares indicate that income shares of the top 10 percent earners have increased at the expense of all other income groups. While there is some country heterogeneity, the increase in top income shares since the 1980s appears to be a pervasive phenomenon.  

Class power counts

As we can see in the first figure above, rich households, with a mean income of greater than $2 million a year, have “40 times the income of the bottom 60 percent and 13.5 times payments going to the middle class.” In the figure below, Taylor illustrates the source of that income.  One way or another, he finds that it comes from capital ownership and profits.

As we can see, labor compensation has grown rapidly over the last few years, and now exceeds $500,000 per year.  Still, it represents only roughly nine percent of the total, significantly less than either of the other two main income categories, proprietor’s income and interest and dividends.  Proprietor’s income, interest and dividends, and capital gains all flow from ownership.  So, in fact, does an important share of labor compensation which includes bonuses and stock options.

As Taylor explains:

Given that the bulk of income of the top one percent comes from profits through one channel or another, the obvious inference is that the rising Palma ratios in Figure 1 were fueled by an ongoing shift away from wages in the “functional” income distribution between labor and capital.

The question is why wages of ordinary households lagged.

After examining patterns and trends in business profits, Taylor concludes that the primary answer lies in the ability of firms to hold down wages.  Among the reasons for their success:

Changes in institutional norms (laws, unionization and other of the game) surely played a role. Robert Solow (2015) from MIT, the doyen of mainstream macroeconomics, observes that labor suffered for reasons including “the decay of unions and collective bargaining, the explicit hardening of business attitudes, the popularity of right-to-work laws, and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all point in the same direction: the share of wages in national value added may have fallen because the social bargaining power of labor has diminished.”

Divide-and-rule in a “fissuring” labor market, as described by David Weil (2014) is one aspect of this process. Globalization, which came to the forefront in the 2016 Presidential election, also played a role.

The IMF study again provides support for this conclusion. A simple correlation test of the relationship between labor market institutions and inequality produced “a strong negative relation between the top 10 percent income share and union density.”  Econometric tests that attempted to control for technology, globalization, financialization, tax rates and a host of other variables confirmed the relationship.  As the authors explain:

Our benchmark estimates of gross income inequality indicate that the weakening of unions is related to increases in the top 10 percent income share. A 10 percentage point decline in union density is associated with a 5 percent increase in the top 10 percent income share. The relation between union density and the Gini of gross income is also negative and significant.

On average, the decline in union density explains about 40 percent of the 5 percentage point increase in the top 10 percent income share . . . . By contrast, the decline in unionization contributes more modestly to the rise of the gross income Gini, reflecting the somewhat weaker relation between these variables. However, about half of the increase in the Gini of net income is explained by the decline in union density, evidencing the additional and statistically significant relation between this institution and redistribution. The decline in union density was a widespread phenomenon which, as our estimation results suggest, could be an important contributing factor to the rise in top income shares.

The takeaway

Taylor doesn’t minimize the significance of the ongoing tax changes.  But as he states:

it took 30 or 40 years for the present distributional mess to emerge. It may well take a similar span of time to clean it up.  Progressive tax changes of $100 billion here or $50 billion there are not going to impact overall inequality. The same is true of once-off interventions such as raising the minimum wage by a few dollars per hour.

Long-term improvement requires changes to the present situation that can cumulate over time.

And that requires rebuilding labor’s strength so as to secure meaningful wage increases and a transformation in economic institutions and dynamics.  As the IMF study makes clear, fighting for strong unions must be an important part of the process.

The 2016 Survey of Consumer Finances paints a grim picture of working class finances

The Survey of Consumer Finances (SCF) is a triennial survey of U.S. families that is sponsored by the Federal Reserve Board (Fed) and carried out by the NORC at the University of Chicago.  It includes information on families’ balance sheets, pensions, income, and demographics. As the Fed notes, “No other study for the country collects comparable information.”

Sadly, as we see below, the wealth data from the 2016 survey paints a grim picture of working class finances, reinforcing what many people already know, that US capitalism works to enrich the few at the expense of the many.

The following figure and table from the 2016 survey shows trends in the median net worth for all families, measured in 2016 dollars.  Strikingly, the median in 2016 was 8 percent below what it had been in 1998.

Of course, while the median value is useful for capturing broad trends, the next figure and table, also from the 2016 survey, makes clear that capitalism’s motion does not treat all families equally.  More specifically, the bottom fifth of families saw their net worth fall by 24 percent over the period 1998 to 2016, while the next lowest income tier experienced an even greater decline, 34 percent.  Those in the next two higher income tiers basically treaded water.  In sharp contrast, the top ten percent enjoyed a net worth increase of 146 percent over the same period.

Matt Bruenig, drawing on data from the survey, provides an even clearer picture of wealth inequality in the following figure.  As he explains:

[it] shows what percent of wealth is owned by each wealth decile.  The way this reads is as follows: the bottom 10 percent owns -0.5 percent of the wealth in the country (they are net debtors) while the top 10 percent owns 77.1 percent of the wealth in the country.

In fact, wealth is even more concentrated than it appears in this figure.  In 2016 the top 1 percent owned 38.5 percent of the wealth, more than the bottom 90 percent combined. This was a sharp rise from the 29.9 percent share they held in 1989.

So, the next time you hear media analysts celebrate US capitalism as a great wealth creating machine, remember that they are celebrating a social system that largely works for the benefit of a very few.

Media Complicity Increases The Possibility Of A New Korean War

Tensions between the US and North Korea are again rising in the wake of North Korea’s November 28th test of an ICBM that experts believe has the potential to deliver a nuclear bomb to cities on the east coast of the US, including Washington D.C.

As I have written before, we desperately need to change US foreign policy towards North Korea.  North Korea’s leaders continue to seek talks with the United States, with all issues on the table, those of concern to them and those of concern to the US government.  But the US government continues to refuse.  The Trump administration has even rejected North Korean offers to freeze its production and testing of missiles and nuclear weapons in return for a halt to US war games directed against North Korea.

Instead, Trump continues Obama’s strategy of responding to every North Korean missile launch or nuclear test with new military threats and sanctions.

Unfortunately, changing US foreign policy towards North Korea is no easy matter.  One reason is that there are powerful forces opposing a de-escalation of tensions.  Sadly, the tension is useful to the US military industrial complex, which needs enemies to support its desire increase in the military budget.  It is also useful to the US military, providing it with a justification for maintaining troops on the Asian mainland and in Japan.  The tension also helps the US government isolate China and boost right-wing political tendencies in Japan and South Korea, developments favorable to our own militarists and right-wingers.  Of course, the costs of US policy fall on ordinary people.

Another reason for the difficulty in changing US policy towards North Korea is that the US media does little to provide the context necessary for people in the United States to understand its lawless and destructive nature.

The illegality of Trump administration threats of destruction

The Trump administration has repeatedly threatened North Korea with total destruction.  What is missing from media accounts of these threats is the explanation that they represent a violation of the UN Charter and international law.  As Gavan McCormack explains:

According to the UN Charter’s Article 2 (3), disputes between states must be settled by peaceful means and (4) “All members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state …” [italics added]. Article 33 further specifies the obligation of parties to any dispute likely to endanger international peace and security to “first of all, seek a solution by negotiation inquiry, mediation, conciliation … or other peaceful means of their own choice.” By ruling out negotiations with North Korea and insisting only on submission, the US, Japan and Australia ignore or breach this clear rule (and Japan breaches also the proscription on the “threat or use of force as means of settling international disputes” in its own constitution). Going beyond that, President Trump has also not only insulted the North Korean leader from the platform of the UN General Assembly but actually threatened his country with “total destruction,” by “fire and fury, and frankly power the likes of which this world has never seen before.” That surely qualifies as threat. It is even genocidal, and therefore criminal behavior, not only on the part of those (Trump) who utter it but on the part also of those like Abe and Turnbull (to whom perhaps now India’s Modi is to be added) who endorse and encourage it.

Moreover, in 1996, the International Court of Justice, in response to a UN request, ruled that threats to use nuclear weapons against another country are a violation of international law except “in an extreme circumstance of self-defense, in which the very survival of a State would be at stake.”  In certainly seems clear that the US is in violation of international law because of its repeated threats and military exercises designed to practice a nuclear attack on North Korea.

Tragically, the US media has remained silent about this lawlessness on the part of the US government.

The illegality of US-initiated UN sanctions on North Korea

The US has aggressively pursued the adoption of UN sanctions on North Korea.  The ones adopted in August and September are the most sweeping yet. They call for blocking North Korean exports of coal, iron, iron ore, lead, lead ore, seafood and textiles, all of which are important earners of foreign exchange. The resolutions also ban countries from opening new or expanding existing joint ventures in North Korea or renewing labor export agreements.  They also impose a cap on the amount of oil North Korea is allowed to import and call for a total ban on the country’s import of natural gas and condensates.  If rigorously enforced these sanctions will devastate living conditions for the great majority of North Koreans.

However, sanctions that target an entire population with the aim of causing economic collapse, such as those being imposed on North Korea, are illegal under the UN charter.  As McCormack points out:

Only sanctions carefully tailored to apply to those who act in the name of the government and bear responsibility for its offensive actions may be legitimate. . . . The point is clear that that those imposing sanctions bear an obligation to ensure they impact only upon those who are in a position of power, not on innocent civilians. There is reason to wonder if the United Nations itself, by the ordering of collective punishment of the entire North Korean people for offenses committed by their government, may be acting criminally.

Again, where are the stories pointing out the lawlessness of US and UN actions?

The missing explanation of North Korean responses to US policy

The reporting on North Korea’s November 28th ICBM test offers another example of the US media’s failure to educate its readers. For example, here is the LA Times:

The launch is North Korea’s first since it fired an intermediate-range missile over Japan on Sept. 15, and may have broken any efforts at diplomacy meant to end the North’s nuclear ambitions. U.S. officials have sporadically floated the idea of direct talks with North Korea if it maintained restraint. . . .

Italy’s U.N. Ambassador Sebastiano Cardi, the current Security Council president, told reporters late Tuesday that “it’s certainly very worrying. Everybody was hoping that there would be restraint from the regime.”

This reporting certainly suggests that North Korea just doesn’t want peace no matter how hard the US and broader international community try.  But the story changes if we provide some missing context.

Since 2013 North Korea has offered to halt its testing of missiles and nuclear weapons if the US would halt its war games.  The US organizes two different annual war games in South Korea, the first is held over March and April and the second is in August.  But from time to time, it also engages in other smaller military exercises on and near the Korean peninsula.

The August 2017 war games included planning for a nuclear attack and “decapitation” of North Korea’s leadership.  These August war games are smaller than the March-April ones but still large.  This one included some 20,000 US and 50,000 South Korean troops.  And this year, for the first time, they were combined with a separate 18 day live-fire exercise involving US and Japanese forces on the northern Japanese island of Hokkaido.

North Korea responded to these threatening maneuvers by first firing a missile over Hokkaido on August 29, the day after the completion of the US-led exercises.  Then on September 3, it conducted its sixth and largest test of a nuclear weapon.  And finally, on September 15, it tested a new intermediate-range missile to demonstrate its ability to hit the major US air base in Guam.

There are 75 days from September 15 to November 28; this is an important interval.  The reason is that the US had publicly called upon North Korea to halt its missile testing for at least 60 days to show its good will.

For example, in August, Secretary of State Rex Tillerson told a group of reporters that “The best signal that North Korea could give us that they’re prepared to talk would be to stop these missile launches . . . We’ve not had an extended period of time where they have not taken some type of provocative action by launching ballistic missiles. So I think that would be the first and strongest signal they could send us is just stop, stop these missile launches.”  And in October, Joseph Yun, the U.S. State Department’s top official on North Korea policy, told an audience at the Council on Foreign Relations “that if North Korea halted nuclear and missile testing for about 60 days, that would be the signal the United States needs to resume direct dialogue with Pyongyang.”

As we have seen, the North Koreans did refrain from missile launches and weapon tests for more than 60 days.  But, what did the US do during that time to encourage North Korea?

On September 23 the Pentagon sent B-1B Lancer bombers, nicknamed “the swan of death,” to fly over international airspace just off the coast of North Korea, the first time since the Korean War that a U.S. bomber flew over North Korea’s east coast.

Then for five days, starting October 16, the US conducted joint naval exercises with South Korea that included the nuclear aircraft carrier Ronald Reagan, three nuclear submarines, Aegis destroyers and more than 40 other battleships and numerous fighter aircraft.

In November, the US conducted more navel drills.  This time it was a four-day exercise involving three aircraft carriers–the USS Ronald Reagan, Theodore Roosevelt and Nimitz–and their multiship strike groups in the waters between South Korea and Japan.  This was the first time all three aircraft carriers were together in the Western Pacific in a decade.  South Korean and Japanese warships also participated in the exercise.

Also in November, President Trump placed North Korea back on the list of state sponsors of terrorism, which meant new sanctions.  And finally, again in November, the US announced yet another war game to be scheduled for the period December 4-8 involving US, Japanese, and South Korean forces.  Called Vigilant Ace, the military announced that this exercise would includeenemy infiltration” and “precision strike drills” and involve 8 air bases, 12,000 soldiers, and 280 aircraft, including the two stealth fighters, the F-22 and the F-35.  This was to be the first time that the F-22 and F-35 would be used in war games on the Korean peninsula.

So, after waiting 75 days, and observing US actions, all of which were hostile, North Korea not surprisingly responded with the launch of its most powerful ICBM, showing the US that it could target even its capital if attacked.  But by presenting this missile launch without the appropriate context the media made it appear as just another example of North Korea’s recklessness and hostility.


Sadly, we have a lot of work to do.

Just Say No To NAFTA

The North American Free Trade Agreement (NAFTA) is unpopular with many working people in the United States, who correctly blame it for encouraging capital flight, job losses, deindustrialization, and wage suppression.   President Trump has triggered the renegotiation of the agreement, which will likely conclude early next year.  Unfortunately, progressives are in danger of missing an important opportunity to build a working class movement for meaningful economic change.  By refusing to openly call for termination of the agreement, they are allowing President Trump to present himself as the defender of the US workers, a status that will likely help him secure the renewal of the treaty and a continuation of destructive globalization dynamics.

The NAFTA debate

According to a recent poll commissioned by Public Citizen:

At a time of great peril for our democracy and deepening public opposition to Donald Trump on many fronts, he wins high marks from voters on handling trade and advocating for American workers: 46 percent approve of his handling of trade agreements with other countries, 51 percent, his ‘putting American workers ahead of the interests of big corporations’ and 60 percent, how he is doing “keeping jobs in the United States.”

This perception of Trump’s advocacy for workers is encouraged by media stories of the strong opposition by leading multinational corporations to several of President Trump’s demands for changes to the existing NAFTA agreement.

The most written about and controversial proposals include:

  • Major modifications to NAFTA’s investor-state dispute settlement system, which allows foreign investors to sue host governments in secret tribunals that trump national laws if these investors believe that government actions threaten their expected profits. The Trump administration proposes to change this system by (1) establishing an “opt-in” provision that would make participation voluntary and (2) ending the ability of private investors to use claims of denial of “minimum standard of treatment” or an “indirect expropriation” as grounds for filing a claim.
  • A tightening of the rules on the origins of car parts. NAFTA rules govern the share of a product that must be sourced within NAFTA member countries to receive the agreement’s low tariff benefits. The Trump administration wants to raise the auto rules of origin to 85 percent from the current 62.5 percent and include steel as one of the products to be included in the calculations.  It has also proposed adding a new US-only content requirement of 50 percent.
  • The introduction of a NAFTA sunset clause that would allow any of the participating countries to terminate the deal after five years, a clause that could well mean a renegotiation of the agreement every five years.

Canadian and Mexican government trade representatives have publicly rejected these proposals.  The US corporate community has called them “poison pills” that could doom the renegotiating process, possibly leading to a termination of the agreement.  The president of the US Chamber of Commerce has said that:

All of these proposals are unnecessary and unacceptable. They have been met with strong opposition from the business and agricultural community, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. . . . The existential threat to the North American Free Trade Agreement is a threat to our partnership, our shared economic vibrancy, and clearly the security and safety of all three nations.

Corporate lobbyists are hard at work, trying to convince members of Congress to use their influence to get Trump to withdraw these proposals, but so far with little success.  In fact, the Trump administration has pushed back:

In remarks to the news media in mid-October, Robert E. Lighthizer, the United States trade representative, said that businesses should be ready to forego some of the advantages they receive under NAFTA as the United States seeks to negotiate a better deal for workers. In order to win the support of people in both parties, businesses would have to “give up a little bit of candy,” he said.

It is this kind of public back and forth between corporate leaders and the Trump administration that has encouraged many working people to see President Trump as sticking up for their interests.  In broad brush, workers do not trust a dispute resolution settlement system that allows corporations to pursue profits through secret tribunals that stand above national courts.  They also welcome measures that appear likely to force multinational corporations to reverse their past outsourcing of jobs, especially manufacturing jobs, and promote “Buy American” campaigns.  And, they have no problem with periodic reviews of the overall agreement to allow for ongoing corrections that might be needed to improve domestic economic conditions.

The rest of the story

Of course, NAFTA negotiations are not limited to these few contentious issues.  In fact, trade negotiators have made great progress in reaching agreement in many other areas.  However, because of the lack of disagreement between corporations and the Trump administration on the relevant issues, the media has said little about them, leaving the public largely ignorant about the overall pace and scope of the renegotiation process.

Perhaps the main reason that agreement is being reached quickly on many new issues is because many of the Trump administration’s trade proposals closely mirror those previously agreed to by all three NAFTA country governments during the Transpacific Partnership negotiations.  These include “measures to regulate treatment of workers, the environment and state-owned enterprises” as well as “new rules to govern the trade of services, like telecommunications and financial advice, as well as digital goods like music and e-books.”  In short, taken overall, it is clear that the Trump administration remains committed to “modernizing” NAFTA in ways designed to expand the power and profitability of transnational corporations.

A case in point is the proposed change to the existing NAFTA side-agreement on labor rights.  NAFTA currently includes a rather useless side agreement on labor rights.  It only requires the three governments to enforce their own existing labor laws and standards and limits the violations that are subject to sanctions.  For example, sanctions can only be applied—and only after a long period of consultations, investigations, and hearings–to violations of laws pertaining to minimum wages, child labor, and occupational safety and health.  Violations of the right to organize, bargain collectively, and strike are not subject to sanctions.

The labor standards agreement that the US proposes to include in NAFTA is one that it has used in more recent trade agreements and was to be part of the Transpacific Partnership.  It says that “No Party shall fail to effectively enforce its labor laws through a sustained or recurring course of action or inaction in a manner affecting trade or investment between the Parties, after the date of entry into force of this Agreement for that Party.”

This labor agreement is included in the US-Dominican-Central American Free Trade Agreement (DR-CAFTA) and we now have an example of how it works, thanks to a case filed in 2011 by the US against Guatemala.  The panel chosen to hear the case concluded, in June 2017, that the US “did not prove that Guatemala failed to conform to its obligations.”  The reason: the three person panel made its own monetary calculations about whether Guatemalan labor violations were serious enough to affect trade or investment flows between the two countries and decided they were not.

As Sandra Polaski, former Deputy Director-General for Policy of the International Labor Organization, writes:

The panel reached its decision that Guatemala had not breached its obligations under the DR-CAFTA because the violations had not occurred “in a manner affecting trade” between the parties. . . . The panel chose to establish a demanding standard in its interpretation of that phrase, requiring that a complaining country would have to prove that there were cost savings from specific labor rights violations and that the savings were of sufficient scale to confer a material competitive advantage in trade between the parties.  This threshold is unprecedented in any analogous applications: WTO panels have interpreted similar language much more narrowly, as affecting conditions of competition, without requiring demonstration of costs and their effects. Demonstrating changes in costs at this level would require access to sensitive internal company accounts (at a minimum), and the perpetrators of labor violations would likely have hidden them in any case. This standard could not be met without subpoena power, which does not exist under the trade agreements. . . .

The decision is disturbing for multiple reasons: because of the injustice toward the affected Guatemalan workers; because it invalidated the parties’ explicit commitment to broad enforcement of labor rights contained both in the obligatory commitments and the overall stated purposes of the agreement; and because as the first and as of now only arbitration arising from a labor clause (or environmental clause) it set a precedent for future cases.

In short, labor exploitation is likely to continue unchecked under a possible new NAFTA, which can be expected to remain as corporate friendly as the original agreement.

The need for a new progressive strategy of opposition

President Trump has threatened to withdraw the US from NAFTA if the other two countries do not agree to his demands for key NAFTA changes, in particular to the investor-state dispute settlement system and rules on the origins of car parts, the inclusion of a sunset clause, and an end to government procurement restrictions.  While we cannot predict the future, the odds are great that compromises will be reached on these issues, allowing President Trump to present a renegotiated NAFTA as a win for working people.

As Jeff Faux, founder of the Economic Policy Institute, comments:

The erratic and belligerent Trump might, of course, drive US-Mexican relations over a cliff. But he prides himself as a deal-maker, not a deal-breaker. So the most likely outcome is a modestly revised NAFTA that: 1) Trump can boast fulfills his pledge 2) Peña Nieto can use to claim that he stood up to the bullying gringo 3) doesn’t threaten the low-wage strategy for both countries that NAFTA represents.

Revisions might include weakening NAFTA’s dispute settlement courts, raising the minimum required North American content for duty-free goods, and reducing the obstacles to cross-border trade for small businesses on both sides of the border.

Changes like this could marginally improve the agreement, and would be acceptable to the Canadians, who have been told by Trump that he is not going after them. But from the point of view of workers in the American industrial states who voted for Trump, the new NAFTA is likely to be little different from of the old one. The low-wage strategy underlying NAFTA that keeps their jobs drifting south and US and Mexican workers’ pay below their productivity will continue.

But you can bet that Trump will assure them that it is the greatest trade deal the world has ever seen.

Sadly, the progressive movement has pursued the wrong strategy to build the kind of movement we need to oppose the likely NAFTA renewal or take advantage of a possible US withdrawal.  In fact, it has largely allowed President Trump to shape the public discussion around the renegotiations.

To this point, progressive trade groups, labor unions, and Democratic Party politicians have refrained from calling Trump’s bluff and demanding termination of the agreement, despite the fact that this and other so-called free trade agreements are not really reformable in a meaningful pro-worker sense. Instead, they have concentrated on demonstrating the ways that NAFTA has harmed workers, highlighting areas that they think are in most need of revision and offering suggestions for their improvement, and mobilizing their constituencies to press the US trade representative to adopt their desired changes.  Progressive trade groups have generally turned their spotlight on the investor-state dispute resolution system and outsourcing, as have Democratic Party politicians.  Trade unions, for their part, have emphasized outsourcing and labor rights.

Significantly, these are all areas, with the exception of labor rights, where the Trump administration has put forward proposals for change which if realized would go some way to meeting progressive demands.  The result is that the progressive movement appears to be tailing or reinforcing Trump’s claims to represent popular interests.  And, by focusing on targeted issues, the movement does little to educate the population about the ways in which the ongoing negotiations are creating new avenues for corporations to enhance their mobility and profits, especially in services, finance, and e-commerce.

Apparently, leading progressive groups plan to wait until they see the final agreement and then, if they find it unacceptable with regards to their specific areas of concern, call for termination of the agreement.  But this wait and see strategy is destined to fail, not only to build a movement capable of opposing a revised NAFTA agreement, but even more importantly to advance the creation of a working class movement with the political awareness and vision required to push for a progressive transformation of US economic dynamics.

For example, this strategy of creating guidelines for selective changes in the agreement tends to encourage people to see the government as an honest broker that, when offered good ideas, is likely to do the right thing.  It also implies that the agreement itself is not a corporate creation and that a few key changes can make it an acceptable vehicle for advancing “national” interests.  Finally, because agreements like NAFTA are complex and hard to interpret it will be no simple matter for the movement to help its various constituencies truly understand whether a renegotiated NAFTA is better, worse, or essentially unchanged from the original, an outcome that is likely to demobilize rather than energize the population to take action.  Of course, if Trump actually decides to terminate the agreement, the movement will be put in the position of either having to praise Trump or else criticize him for not doing more to save NAFTA, neither outcome being desirable.

There is, in my opinion, a better strategy: engage in popular education to show the ways that trade agreements are a direct extension of decades of domestic policies designed to break unions and roll back wages and working conditions, privatize key social services, reduce regulations and restrictions on corporate activity, slash corporate taxes, and boost multinational corporate power and profitability.  Then, organize the most widespread movement possible, in concert with workers in Mexico and Canada, to demand an end to NAFTA.  Finally, build on that effort, uniting those fighting for a change in domestic policies with those resisting globalization behind a campaign directed at transforming existing relations of power and creating a new, sustainable, egalitarian, and solidaristic economy.

It is not too late to take up the slogan: just say no to NAFTA!