From the TUC

Trouble in America

01 Aug 2010, by in Economics, International, Politics, Public services, Society & Welfare

Two articles this weekend explain the nature of the crisis in the USA. In the Financial Times, Edward Luce writes a long article about what’s gone wrong with the American dream –  not just the recession, but the great stagnation of the last thirty-forty years. And in the New York Times, Robert Shiller explains why jobs are crucial, rather than GDP growth. Both highlight the fact that what the US needs to do is to focus on better prospects for what they call the middle class (what we usually call the working class in the UK, or Middle Britain) – people with steady jobs who are the motor not just of economic but also social progress.

Shiller’s article is more focused on a single solution – jobs, jobs, jobs. But Luce’s piece explains more about what has gone wrong long term with the US economy: the debt-fuelled recession is the result, not the cause of the current woes. As the AFLCIO have consistently argued, what has happened in the last forty years in the US is that the rich have got richer while the middle classes have stagnated.  In 1973, chief executives in the US were paid 26 times the median income. Now the ­multiple is above 300. And as the class divide has widened, social mobility in the land of the free has declined to worse than anywhere in Europe. One key component of that is the cost of, and arrangement of, health care. For the US middle classes, poor health is a major cause of poverty – far more than even in the UK, the most American country in Europe, where there is clearly a link, but the NHS ensures that illness isn’t a direct route to poverty, as it can be in the US. There are other causes, not least the bigger decline in union power in the US than in Europe, and the faster penetration of globalisation.

Luce  quotes what he calls the renowned Harvard economist, Larry Katz’s compelling analogy.

“Think of the American economy as a large apartment block,” says the softly spoken professor. “A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most.”

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