Professor Ravi Batra of South Methodist University, Dallas spoke to PROUT Globe’s Trond Øverland about the widening wage gap, US economic policy is world policy, and the smiling CEOs of today who one day will be crying.
(Dallas Texas, April 24, 2012)
Can you say something about the widening gap between rising production and falling wages, the so-called wage gap. Is it conscious government policy?
RB: It is conscious government policy. That’s the sad part of it is that it reflects political corruption. Anything that reduces labor demand will reduce the real wage and reduce people’s salaries. Anything that reduces labor demand for the economy as a whole will lead to a fall in wages.
So what are those policies? First of all, you have the policy of the falling minimum wage – in real terms, in purchasing power terms. You see, there is a dubious economic theory popular among the proponents of monopoly capitalism for hundreds of years.
“Not to allow wages to rise is an American policy. So that has spread all over the world. The policies and economy of the US have a tremendous influence on the world.”
That theory says that unemployment occurs when the minimum wage goes up! It is a totally wrong notion that was never supported by facts and history. Nevertheless, those who support the system, who are in charge of economic policy and of the media, keep repeating again and again that unemployment results from a rising minimum wage.
Well, let’s look at the example of the United States economy:
- In 1969, the minimum wage in real terms, in purchasing power terms, was 10 dollars per hour. At that time, the unemployment rate was 3.5 percent.
- Today the minimum wage is only 7 dollars per hour while the unemployment rate in true terms is 15-16 percent.
So to say that a higher minimum wage is the cause of higher unemployment is incorrect. It is just the propaganda of big business CEOs. Still, this theory is really popular among many economists. In fact, almost all economic textbooks teach it.
Prices have been rising fast while the minimum wage has not. That’s why the purchasing power of the minimum wage has decreased so much. This is one reason why wages have been falling. This is government policy. It is not the policy of the Obama administration but it was the policy of both the Reagan and Bush administrations. Under Clinton the minimum wage went up somewhat but never caught up with prices. Therefore the real minimum wage has been falling sharply and that is one reason why wages have been stagnant.
The other reason is outsourcing. When countries are allowed to outsource their work, for which they have to pay high wages at home, then real wages will fall.
The third reason is free trade; free trade with low wages nations. If a high wages nation has free trade with other similar countries (where the wages are high) it is bad for both parties. However, if a high wages nation has free trade with low wages nations it kills the economy of the high wages nation.
These three causes of the falling minimum wage — rising prices, outsourcing, and free trade — have destroyed the manufacturing base in the US, in Europe and in Australia. This is why these countries have seen falling wages while the productivity continues to rise.
They postpone the problem of the widening wage gap by creating a lot of debt in the economy. However, once the consumers had spent their good collateral consumer debt could not rise anymore, and that characterized the initial stage of the present world economic crisis.
Major economic reforms 2016-2020
If we do not get a majority of good politicians from the current (November 2012) elections, which is somewhat doubtful, then by the 2016 elections the economy of the world will be so bad that there will be massive changes.
That’s why the year 2016 is important in my mind. It may take another year, 2017, and definitely by the end of this decade. We will see major economic reforms and the rise of PROUT.
The importance of a proper system of taxation
Do you see that taxation has influenced the direction of the minimum wage in any way?
RB: Well, since 1980 (the year Reagan became President) taxes have been rising on the poor and middle classes and falling on the rich. The tax burden has been shifted onto the poor and the middle classes, and that is one reason why growth has been low.
Economic growth has been very low since 1980. Earlier the US economy had been growing at an average of 4 percent per year. Between 1980 and 2000 it went down to 3 percent per year, and since it has fallen sharply because of the ongoing slump.
“In the end the CEOs will cry but right now they are very happy because they are getting richer than never before.”
High taxes on the rich and low taxes on the poor kept consumer demand high. Rising consumer demand means increasing growth. Once they switched to this regressive taxation, by increasing taxes for the poor and the middle classes and lowering them on the rich, consumer demands could not rise as fast as it had done in the past. So growth fell.
A proper system of taxation is very important for the prosperity of an economy. The tax system used to be that the US had very high tariffs on imported goods, which kept domestic industries prosperous. That was a chief reason as to why the US emerged as the world’s leading economy with the largest manufacturing base – high tariffs. The tax system should support consumer demand and production at home.
When you have high production at home it also minimizes the problems of pollution. You don’t have to import goods from far away countries and ship them and use so much oil.
Happy now, crying later
Recently I spoke to the CEO of a sea food company in Australia who moaned about declining consumer demand. I asked him if he would support policies that would increase the general purchasing capacity of the public. His immediate response: “No, no, no! It is not the way to go.” Why do you think big business is suicidal like that?
RB: (Smiling) Because this is the way they put money into their own pockets and create unemployment for their own people. I mean, why should a CEO be unhappy with the current system? Their fortunes are multiplying while a lot of people are being laid off. They are getting rich like never before.
But one day they will come to understand that this is self-defeating for themselves. The problem can’t continue like this with large-scale unemployment in the long run. For years now millions of Americans have been living on unemployment benefits, and millions and millions of Europeans have been doing the same thing.
Large sections of the population cannot live on unemployment benefits forever. In the end they will snatch political and economic power from the big business CEOs. Their economic power is now giving them political power and ordinary people will take this power away from them through a revolution and by electing honest politicians.
So in the end the CEOs will cry but right now they are very happy because they are getting richer than never before.
US policies and the world
Reganism changed everything, didn’t it?
RB: Yes, this started in 1980 when Reagan became President and it changed America and the whole world. That is when the wage gap began to widen. Those policies of 30 years ago are mainly responsible for the sorry state the whole world is in right now.
You are based here in Dallas, Texas. To what extent do you see that the rest of the world is following America’s economic policies?
RB: They follow it to a very large degree. America is still the center of the world in terms of culture and economic power. You see all these countries in Asia who try to export as much as they can to the United States. They don’t want to build a large consumer base at home because for that they would have to increase wages.
Not to allow wages to rise is an American policy. So that has spread all over the world. The policies and economy of the US have a tremendous influence on the world. So from this perspective things will have to change here (in the US) first. Changes here will lead to changes everywhere.
Copyright PROUT Globe 2012 www.proutglobe.org