Class War!

Time interviews Barbara Ehrenreich:

Some argue that today's basic standards of living surpass anything the nation has enjoyed historically. What's your response to that?

Well, I certainly wouldn't want to live in the 18th century myself, or the 19th either, for that matter. I am operating on a slightly smaller time frame here and thinking that there has been a real increase in inequality since the 1970s. In recent years we have seen stagnation in average people's wages and salaries and a decline in the benefits they get from their employers. So in recent years I don't think we have been fulfilling that kind of potential that historically we have always felt was America's.

What do you think are the primary causes of that?

I think it's class war coming from the wealthy, from the top really squeezing workers, trying to get more and more out of them.

Not from from international competition and globalization?

I think that's been an easy excuse for a long time. Anything you don't like about this economy — declining wages and speed-ups at work — it's because we have to be competitive. Yet I look at the top and see that American CEOs, for example, are paid much more relative to the average worker than CEOs in other countries.

I fear she has no idea what she is talking about.

What does a real increase in inequality mean? A real increase in income inequality? Sure. An increase in real material inequality? Maybe not. The interesting question has to do with the composition of typical consumption baskets at the top and bottom of the distribution. And then the question is how gains in welfare from new products and the improvements in the quality of existing products have been distributed. It's not clear at all that there is any increase in real consumption inequality.

Also, if there has been a stagnation in wages and a decline in benefits, then total compensation has declined. But surely Ehrenreich has Google:

So total compensation hasn't been stagnating. But supposed it had been. Why?

CLASS WAR!!! That's just crazy. What does she mean?

The reason compensation goes up at all is because productivity has gone up. Which is to say, because we are “squeezing more out of workers.” Here's the relationship between average productivity and average real compensation:

Pretty close! There is a gap opening up between productivity and real compensation, though I suspect “class war” is not the correct explanation.

She's right that CEO's in the U.S. get paid more. And they may even get paid too much, for various reasons. (I am agnostic on this.) But say CEO pay is cut in half. Does she think that firms would allocate the savings to wages and benefits? If they did, would it be enough to even make a difference?

And for the purposes of this class war, who are the wealthy. The household income in the Howley-Wilkinson household puts us securely in the top 10 percent. Richer than 9 out of 10 households in a rich country–that's wealthy, right? Where are my spoils from the class war!? I can tell you, we're in no position to squeeze any workers. I guess Ehrenreich means the owners of capital who profit from labor. You know, like everyone with a mutual fund. Maybe some of these people should be ticked about the overpaid managers of the companies they own.

Special bonus (just substitute “class” for “race”):