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Book would make bad policy: WVU professor comes up short on economics

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Book would make bad policy

WVU professor comes up short on economics

by Ross Eisenbrey 

Over the last few months, a new book edited by WVU professor Russell Sobel called Unleashing Capitalism has been receiving a warm reception among state policymakers (including the governor) and the media, despite the fact that its arguments have little or no foundation in economic reality. In the book, Sobel and his colleagues argue that West Virginia could revive its economy by allowing businesses to operate in the kind of unregulated way they did in the 19th century. This backward view is the direct result of their shaky grasp of certain basic economic concepts: they start from wrong assumptions and, naturally, end with bad policy.

For example, the authors declare that it is a fact of nature “as unquestionable as the Earth rotating around the sun” that productivity — output per hour — drives wages. But the authors attempt to demonstrate this relationship by charting productivity against per capita income — a measure very different from wages. In fact, as the profit share of national income has increased over the last generation, per capita income has grown much faster than the typical worker’s wage. The result has been a steep rise in inequality, with the rich getting much richer and working folks treading water.

Productivity and wages should be related, and wages ought to rise as productivity increases. It’s only fair, after all, that workers should benefit from their higher output. But productivity and wages don’t necessarily rise in tandem. One of the biggest economic problems facing the country is the fact that over the last 30 years, productivity grew substantially while the wage of the typical American worker has barely increased after adjusting for inflation. The problem has been quite severe in recent years: from 2000 to 2005, productivity increased 17 percent while the median wage increased only 3 percent. Most economists, including Federal Reserve Chairman Ben Bernanke, have come to recognize this problem — but not the authors.

Globalization and the decline in the inflation-adjusted value of the minimum wage have contributed to stagnating wages, but the loss of union power is also a key factor, as hostile employers learned they could close union facilities, fight organizing campaigns, and harass or punish union sympathizers with impunity. In 1979, 27 percent of all employees were covered by a union contract. Today only 12 percent are covered, even though more than half of workers say they would like to belong to a union.

Because unions have been weakened, corporate CEOs and other executives have been bolder — raking in outrageous salaries while keeping their employees’ wages low. In the past 40 years, CEO pay has risen from 24 times the average worker’s pay to 262 times that amount.

Employers — especially non-union employers — have been cutting benefits for their workers, too. Traditional pensions are being eliminated, health benefits have been cut or the costs shifted to workers, and retiree health benefits are becoming a thing of the past. Productivity increases have not prevented these cutbacks because workers feel powerless to stop them, as strikes have all but disappeared from the American landscape.

Sobel and his colleagues would make these trends worse by weakening unions, rather than supporting laws such as the Employee Free Choice Act that would make it easier for workers to join unions. They would repeal the federal minimum wage law that boosted the wages of 133,000 West Virginians (19 percent of the state’s workforce) beginning July 24. And they would repeal prevailing wage laws that keep government contractors from driving down wages in order to win government contracts.

Sobel’s message — that only inevitable market forces can raise wages and ensure a rising standard of living — has been proven wrong. Luckily, West Virginia’s senators and most of its congressmen understand that workers need thoughtful public policies and collective bargaining power if they are going to share fairly in America’s prosperity.

Eisenbrey is vice president of the Economic Policy Institute in Washington, D.C.




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