Victor Grossman: HUMBOLDT AND GAZA

HUMBOLDT AND GAZA

Berlin Bulletin No. 222   May 4 2024

Victor Grossman, Berlin                              wechsler_grossman@yahoo.de

 

No books were burned this time in early May. But there were ironic parallels, some all too alarming!

It was May 10^th in Germany's terrible year 1933, Hitler had been in power for hardly three months, when students and staff emptied the university libraries of forbidden books and threw them, an estimated 20,000 books by over a hundred authors, into the flames of a giant bonfire. Most authors were German - Jewish, atheist, liberal, leftist, Bertolt Brecht, Anna Seghers, Sigmund Freud and  Magnus Hirschfeld, but also some foreign works were thrown into the flames – Maxim Gorki, Hemingway, Jack London, Dos Passos.

Ninety-one years later, this May 3rd, just across Berlin's famous Unter den Linden boulevard and in the same university courtyard where those books had once been dragged from, some of today's students – courageous, determined, the total opposite of the Nazis of 1933 - were forcibly hauled away to waiting police vans. The students of 1933 were advocating murder, preparing for the genocide which was to follow. These students of 2024 are protesting against murder and genocide.

The mayor, the authorities claimed that forbidden Hamas slogans were called out, justifying their brutal cuffing and arrests. It is possible that some Arab participants, emotionally moved by news and the pictures from Gaza, may have generalized these feelings. Who knows? And does it matter? This group was not anti-Semitic; it also included Jewish students, a few of them Israeli exiles. The spirit of these first three hundred demonstrators, as in similar scenes at other colleges and universities in Germany and other countries – and so very courageously all over the U.S.A. - was directed against destruction worse than any since 1945, of homes, mosques, churches, libraries, schools and universities in Gaza and against the killing of over 35,000 human beings, a majority of them women and children, and the physical and psychical maiming of so many more.

But these demonstrations, now growing rapidly in number, were more than that. For many they also expressed protest at the entire scene now engulfing Germany, and not only Germany. Hatred is in the air, with century-old feelings of superiority over "inferior" people, growing pressure to build ever more destructive weapons and prepare to use them – always, of course "in justified self-defense," whether in Gaza, in Lithuania, Estonia or for blockades against human beings at frontiers in Texas, Arizona or along Mediterranean seashores. And with this hatred there were mounting pressures for conformity. Don't rock the boat – or else! Such trends are gaining strength, aiming at the accession of total power, and not only with the obviously far-right groups! For so many of the proper, accepted leaders have ties with the billionaire profiteers thrilling at new conflicts and more mansions, jets, yachts.

It is the new spirit of protest against these trends, the hunt for new answers, which has dominant circles worried, even fearsome. That is why they send police into Hind's Hall or the courtyard of Humboldt University. Sometimes they prevail and can break resistance, sometimes local victories can be won. But it is the long-awaited movement which counts, and its match-up with equally courageous workers at auto plants, at Walmart or Starbuck shops or in Central Africa and Central America.

There is an added irony; the site of Friday's protest was the courtyard of Humboldt University in East Berlin, given that name soon after the defeat of the Nazis and the liberation of Berlin by the Red Army on May 8^th 1945. Looking down upon today's fighters is the statue of  Alexander von Humboldt, a great scientist and explorer, who ardently opposed the slavery he saw in Latin America and the U.S.A. in the 1820s - and oppression everywhere. A worthy patron. And inside the handsome building (where Albert Einstein once taught) and despite many changes in the university's character over the years, one sentence has been saved, in golden letters above a wide central staircase. It was written by another famous man, who once studied here, and it might also be considered as very relevant. The author was none other than Karl Marx. The words were: "Philosophers have hitherto only interpreted the world in various ways; the point, however, is to change it." Perhaps it is fear of the revival of such a spirit which has caused the mayor and many politicians to become so angry and worried and to send in the police.  Let us hope the better analogies are models, not the frightening ones!

Dean Baker: Profits Are Still Rising, Why Is the Fed Worried About Wage Growth? April 3

Dean Baker:  Profits Are Still Rising, Why Is the Fed Worried About Wage Growth?

I was more than a bit surprised to see the profit data this morning. I really did believe that the profit surge during the pandemic was a one-off, associated with supply-chain issues.

We can argue about how much of this increase was a predictable story, where profits rise due to shortages, and how much was about companies exploiting market power to jack up prices, but the fact that profit shares increased is not disputable. In any case, it was reasonable to expect that profits would return to their pre-pandemic shares after supply chains returned to normal.

That doesn’t look like what is happening, as shown below.

Source: BEA and author’s calculations, see text.

The profit share of corporate income rose to 26.8 percent in the fourth quarter from 26.3 percent in the third quarter. That is down only 0.5 percentage points from its pandemic peak of 27.3 percent in the second quarter of 2021 and well above the 24.3 percent average for 2019.[1]

This rise in profit shares really should have the Fed rethinking its inflation-fighting strategy. It is certainly true that the 6.0 percent rate of wage growth at the end of 2021 and start of 2022 was inconsistent with the Fed’s 2.0 percent inflation target. However, the current rate of roughly 4.0 percent is obviously consistent with the Fed’s target, if it is allowing companies to increase their profit share. This implies that we should actually want to see a somewhat more rapid pace of wage growth, unless we think profit shares need to be increasing indefinitely.

There are a couple of important qualifications here. First, we saw extraordinary productivity growth in 2023. Clearly corporations were the main beneficiaries of this growth. If this uptick was an aberration and we revert to something closer to the pre-pandemic growth rate, then profit shares may not continue to rise with a 4.0 percent pace of wage growth and could even edge back somewhat.

The other big qualification is that there is a large and unusual discrepancy between GDP measured on the income side and GDP measured on the output side. In principle these sums should be identical, but in a $28 trillion economy, they never come out exactly the same.

In recent decades, the income side has generally been about 0.5 percentage points higher than the output side. In the fourth quarter, the income side was 2.0 percentage points lower. We usually assume that the true figure lies somewhere between the two measures.

This would imply that the true sum of wages and profits is 1.0 to 2.0 percentage points higher than what is now reported. If that gap ends up being disproportionately wages or profits it could change the picture somewhat, but even if the full 2.0 percentage points all ended up being wage income it would not change the fact that the profit share is still far above its pre-pandemic level.  

The upshot is that it really is time for the Fed to declare “Mission Accomplished” and take its foot off the brake. If profit shares are rising, there is no reason for it to be trying to slow wage growth.   

[1] These figures take Line 8 (net operating surplus) from NIPA Table 1.14, minus Line 11 (Federal Reserve Bank profits) from Table 6.16D divided by Line 8 plus Line 4 (labor compensation) from Table 1.14.

1w

Corporations can't be beat for their ability to take advantage of our "democratic" system, where political contributions snowballs to more regulation relaxing that helps them make more and make larger contribution. A nice vicious cycle against the little guy. Average citizens, with hand-to-mouth incomes don't stand a chance to be heard . It is rigged, or should we say, it was born rigged and will remain so until it dies from bloat. Now that our justice system is acting a lot more like the political system and let each other off the hook for bribery, the bloat is accelerating. Good or bad, history's beat goes on.

Kissinger is gone.

 

Henry Kissinger is gone, at 100 years. Some will mourn him, while others, including myself, preferred he face  judgement for crimes against humanity in Vietnam, Chile, and beyond, long ago.

Judgement is a cultured expression for less dignified revenge. As Eastwood's "Unforgiven" hitman's revenge tale concludes: "We all got it comin'". But that may also be an evasion from deeper truths.

Kissinger's rise to intellectual prominence, and eventually to power via the Rockefellers, among other energy interests, rested on a hash analysis of 19th Century "Great Power" conflicts.  I say hash, because it contained very little original thought, and furthermore, Kissinger was keenly aware that the intellectual framework's sole value was as a fungible  fraud to cover the real purpose of post war IS foreign policy -- namely, the removal or compromise of ALL obstacles to US Big Business --- aka "monopoly capitalism" --- expansion and dominion over markets, supply chains, and Security throughout the world. Contrary to the intuition of most Americans, I submit the historical evidence, and actual NSA documentation reported on extensively by Seymour Hersh,  demonstrates that the expansion of capitalism is the ONLY thing meant by the worldwide "defense of democracy".

Socialist countries, and socialist or communist led patriotic liberation movements in former colonies, were the chief adversaries of the 'Kiss' strategies. The Kiss strategy ran into disaster in Vietnam, where a far superior military force, was defeated by a patriotic movement with mass support. 2 million Vietnamese perished.  In their country they are heroes. 50,000 Americans perished, including two of my childhood friends. What did the 50, 000 Americans die for? To keep communists from winning both the elections and civil war against colonialism in Vietnam? Of all the things impinging on the working and living standards and security of working class families in the US, how many are caused by communism, or socialism?

Despite this monumental failure, the Kiss strategy persists, respected in both parties. But we lost more than the 50,000 souls sacrificed in Vietnam. In the resistance to the war, and the massive struggle for civil rights, and their suppression by assassinations, terror, and further corporate consolidation of political and economic power -- the many frauds could not conceal the fact that we, as a nation, had become infected with a cancer, whose cure is not in sight. And it is killing us.

Vietnam was followed by Iraq, endless intrigues and assassinations fostered by the CIA to similar effects, and now Russia and Palestinians. Argentina prolly next.

"We all got it comin'"!

That's the existential view, not the Marxist, or Communist view, or even the Quaker view. As individuals, yes, we come and then go. RIP Henry Kissinger. I do not believe in either heaven or hell, despite their value in storytelling. 

It's not necessarily "comin' for ALL of US.

As peoples, as vast, potentially global family, social and political formations, we can both survive, and progress, and remake the world within the measure of human and material conditions handed down to us.

Or not. 

I think the most  scientific approach is generally the most optimistic. But as AI practice and research is demonstrating, the most scientific approach tends to be the one encompassing the broadest and richest data. It is in that sense, I believe that democracy has its most profound contribution. Far more profound than the current frauds reflected in contests between two "for sale" political parties.

That "for sale" expression is not intended to make Trump, a fascist creep, equivalent to Biden, a decent human being if nonetheless hostage to the same fundamental Kissingerism.

The best eulogy for the Kiss: Lets Move On!

The Marxist Summaries - Nov 18, 2023

ChatGPT-assisted summaries of recent blog posts by Michael Roberts, a UK Marxist economist.

November 18, 2023

About

Lenin In Disguise: He is Making a Comeback.

From A Sahm Recession To Global Downturn

Michael Roberts

This article was originally published: November 12, 2023

The selected text discusses the current state of the US and global economies, highlighting potential risks and challenges they may face. It mentions differing opinions on whether the US will avoid a recession in the next 12 months, with William Dudley, former New York Fed chief, believing that the chances of a recession increase dramatically once the unemployment rate rises by a certain amount. Claudia Sahm, a former Fed economist, has developed the Sahm rule, which accurately predicted recessions since the 1970s, and notes that the reading on the Sahm Rule in October was 0, indicating a potential recession. The text also mentions that even if the US avoids a contraction in real GDP, it is likely to experience a significant slowdown next year, with inflation remaining above the pre-pandemic average and the Fed's target of 2%. It highlights that major economies worldwide face the risk of recession, as global business activity stalled in October and the global PMI fell below 50, indicating contraction. The Eurozone, Sweden, Canada, and the UK are already experiencing economic contractions, with the UK potentially heading into a technical recession. The IMF projects a global growth slowdown in 2024, particularly in the European Union, China, and India. Many emerging market economies are facing a debt crisis, with rising debt servicing costs and vulnerability to currency crashes. The World Food Program estimates that food insecurity will affect around 345 million people in 2023, driven by high energy prices and reliance on higher-emission fuels. The underlying cause of the slowdown in productivity and world trade, as well as the increased geopolitical rivalry, is attributed to the slowing of productive investment growth in the major economies. The text suggests that unproductive investment in finance, real estate, and military spending has been keeping growth up, while investment in technology, education, and manufacturing has dropped away. The global profitability of productive capital has been stagnating or even declining in the 21st century. The IMF calls for structural reforms, including labor market flexibility, fiscal consolidation, clean energy investment, and increased multilateral cooperation to address global challenges and prevent further fragmentation. However, the text argues that these proposals may be unrealistic given the increased spending on fossil fuel production and rising global temperatures. The IMF's support for financial globalization is also criticized, as it exposes countries to certain risks and can be used as blackmail to stop national governments from implementing measures to stop financial globalization. In summary, the selected text highlights concerns about the possibility of a recession in the US and major economies, as well as the challenges posed by inflation, debt crises, and food insecurity. It emphasizes the potential slowdown in global growth and the need for sustainable and resilient economic policies.

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Visions Of Inequality

Michael Roberts

This article was originally published: November 9, 2023

The selected text is a review of Branco Milanovic's book "Visions of Inequality" by an economics website. The book explores the evolution of thinking about economic inequality over the past two centuries, focusing on the works of influential economists. Milanovic's analysis of Karl Marx's views on inequality is highlighted in the review. Milanovic argues that Marx's theory of value can be separated from his discussion of forces that affect income distribution between classes. However, the reviewer questions this observation, suggesting that Marx did address inequality in his writings. According to Milanovic, Marx believed that attempts to reduce inequality within the capitalist system would only lead to reformism and trade unionism, and that the institutions of capitalism needed to be abolished. The reviewer acknowledges that descriptions of poverty and inequality are present in Marx's work, but argues that they are meant to illustrate the reality of capitalist society and the need to end the wage-labor system, rather than advocate for reducing inequality within the existing system. Milanovic suggests that Marx's view of capitalism and inequality was unfinished, with some important parts of his work remaining incomplete. The text also mentions other economists discussed in Milanovic's book, such as François Quesnay, Vilfredo Pareto, and Thomas Piketty. It highlights the debate surrounding Marx's interest in inequality and his belief that addressing it requires the abolition of capitalist institutions. The text provides historical data on wealth and income inequality in the UK and the US during the 18th and 19th centuries. It notes that wealth inequality in the UK was exceptionally high during Marx's time, with the top 1% of wealth-holders owning around 60% of the country's wealth. Income inequality was also high, with capitalists and landlords earning significantly more than workers. Marx's theory of exploitation is discussed, which is based on the idea that workers produce value greater than the value of their labor-power, leading to profit for capitalists. The text also mentions Marx's theory of classes in capitalist society, which is derived from his theory of value. The text concludes by mentioning the debate about whether the exploitation of the Global South by the rich imperialist bloc is mainly due to low wages or the productive power of the imperialist bloc. Marx's observation that the value of labor-power differs according to historical and social needs is highlighted in this debate. Overall, the selected text provides an overview of Milanovic's book and focuses on his analysis of Marx's views on inequality. It highlights the debate surrounding Marx's interest in inequality and his belief that addressing it requires the abolition of capitalist institutions. The text also provides historical data on wealth and income inequality and discusses Marx's theories of exploitation and classes in capitalist society.

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Sri Lanka’s Debt Trap

Michael Roberts

This article was originally published: November 6, 2023

The selected text discusses the debt crisis faced by Sri Lanka and the role of China in this situation. It highlights the recent court decision to grant Sri Lanka a six-month pause on a creditor lawsuit filed by Hamilton Reserve Bank, which holds a significant portion of Sri Lanka's defaulted bonds. The court's decision allows Sri Lanka to negotiate with other private sector creditors, bilateral lenders, and the International Monetary Fund (IMF) to arrange a deal and obtain new funds. The text argues that China is not a major lender to Sri Lanka compared to Western creditors and multinational agencies. Japan and the World Bank remain significant lenders, while China's share is equal to theirs. Commercial lenders now account for nearly 50% of Sri Lanka's debt. The rise in Sri Lanka's debt burden is attributed to the corrupt and autocratic Sri Lankan government's mismanagement rather than China's alleged debt trap. The Sri Lankan government turned to international sovereign bonds to finance its spending after the 2008 Global Financial Crisis. However, the COVID-19 pandemic further worsened the country's economic situation, with the tourism sector being severely affected. Increased spending and imports, coupled with a decline in foreign currency reserves, led the government to print money to cover deficits, resulting in high inflation. The text emphasizes that Sri Lanka's debt crisis was primarily caused by domestic policy decisions and facilitated by Western lending and monetary policies. The government's sustained budget deficit was financed by foreign borrowing, with a significant portion owed to private financial institutions. Despite warnings about the Sri Lankan economy, foreign creditors continued lending, and the government refused to change course for political reasons. The text also addresses the issue of the Sri Lankan port project, often cited as an example of China's debt trap. It argues that China did not propose the port project, and it was driven by the Sri Lankan government's aim to reduce trade costs. The debt trap was a result of domestic policy decisions and facilitated by lax governance and inadequate risk management on both sides. The article concludes by mentioning the political instability in Sri Lanka, with former President Rajapaksa being forced out of office and replaced by his close supporter, Ranil Wickremesinghe. Despite agreeing to fiscal measures with the IMF, Wickremesinghe has been unable to secure approval for fund release, and the debt rescheduling agreement remains unachieved. Hamilton Reserve Bank is opposing any agreement and demanding full repayment on its Sri Lankan bond holdings. In summary, the selected text highlights the complexities of Sri Lanka's debt crisis, challenges the notion of China's debt trap, and emphasizes the role of domestic policy decisions and Western lending in exacerbating the situation.

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50 Years Of Dependency Theory

Michael Roberts

This article was originally published: November 4, 2023

The selected text discusses dependency theory, a critique of modernization theory that emerged in the 1960s and 1970s. Dependency theorists argue that poor countries are systematically exploited by wealthy countries and that economic development does not apply to economies in South America, the Middle East, or Africa. The theory identifies two main groups of countries in the global economic system: the core and the periphery. The core countries are wealthy and control the global economy, while the periphery countries are poor and dependent on the core countries for trade, investment, and technology. The text also references Marx's belief that the more industrially developed countries show the less developed countries an image of their own future. However, only a small group of industrial and commercial capitalist economies achieved Marx's prediction, and these dominant imperialist economies continue to control the world's technology, finance, and resources. The author, Claudio Katz, focuses on the Marxist variant of dependency theory, which argues that countries remain "dependent" due to the extraction of value from labor in their economies to the imperialist bloc through trade, finance, and technology. The theory of "unequal exchange" in international trade is a fundamental component of Marx's theory of value. Differences arise within dependency theory regarding the nature of unequal exchange. Some argue it is due to wage differences, while others attribute it to technologically driven productivity differences. The author agrees with the latter perspective, emphasizing that value transfer from the periphery to the core economies is mainly due to productivity differences and technological superiority. The concept of "super-exploitation," where wages in the periphery fall below the value of labor power or below the average international wage, is also discussed. However, the author argues that super-exploitation cannot be the main determinant of value transfer between rich and poor countries. The text also touches on the role of monopoly power in the dominance of imperialist companies. While some dependency theorists claim it is the main cause, the author argues that it was not the case according to Marini, a prominent Latin American Marxist dependency theorist. Overall, the text provides a comprehensive overview of dependency theory, its Marxist variant, and the key debates within the theory. It emphasizes the exploitation of poor countries by wealthy countries and challenges mainstream development economics. The author also discusses the concept of "sub-imperialism" and its relevance in understanding contemporary capitalism, but expresses skepticism about its usefulness. The text concludes by highlighting the importance of integrating the theory of value into the explanation of dependency and understanding the logic of underdevelopment in present-day capitalism.

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Debt Distress

Michael Roberts

This article was originally published: October 31, 2023

The selected text discusses the increasing rate of debt distress in both poorer countries and the Global North. It highlights how poorer countries struggle to prosper due to international forces setting commodity prices for their exports. Debt owed by poor countries to richer ones in the Global South has been rising rapidly, and debt servicing costs have mounted despite relatively low interest rates. The recent global inflationary spike has led to a sharp rise in interest rates on debt, further increasing the burden of servicing that debt. The contraction of world trade growth, particularly in resource commodities, has also contributed to the debt distress. In the Global North, rising debt levels and costs are affecting both the capitalist sector and governments. US companies are already facing high interest rates, with borrowing costs for some firms doubling or nearly tripling in 2023 compared to previous years. This has led to an increase in bankruptcy filings and the rise of "zombie" companies that survive by borrowing more because they do not generate enough profit to service their existing debt. The increasing number of corporate defaults and the pressure on creditors, particularly banks, is highlighted as a potential consequence of rising debt distress. The public sector is also facing debt servicing pressure. The US government, for example, has seen a significant increase in the cost of borrowing due to rate hikes by the Federal Reserve, resulting in substantial spending on interest payments. Overall, the selected text emphasizes the growing debt distress in both poorer countries and the Global North, highlighting the challenges faced by governments, companies, and the public sector in servicing their debts. The text suggests that debt must be reduced, central banks must keep interest rates up, and governments must reduce deficits through fiscal austerity. The US stock market has already fallen over 10% in the last few months as the cost of borrowing has risen. The text also mentions the need for entitlement reforms, such as raising retirement pension contributions and the age threshold, and cutting public services. It suggests that many emerging market and developing economies need to reduce the footprint of state-owned enterprises through privatization. The text argues that putting "fiscal houses in order" is essential to ensure governments can deliver for their people, but questions whether this approach is the right way round. It suggests that planned investment in productive sectors and government services globally could lead to economic growth, which would then put fiscal houses in order and alleviate debt distress.

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Job Losses For Which a "Just Transition" Awaits

 

"Just Transition" Challenges

Arising from Tech Plus Progressive Agendas

    At Least 30 Million Jobs seriously impacted

Data from the BLS and American Community Survey, 2022.

1. Artificial Intelligence: Our (OpenAI)  findings reveal that around 80% of the U.S. workforce could have at least 10% of their work tasks affected by the introduction of LLMs, while approximately 19% of workers may see at least 50% of their tasks impacted. These estimates were performed based on comparative scoring of high school and college students compared to GPT on a range of standardized tests, and and skill sets or tasks where GPT scoring could be trusted.

U.S. civilian labor force seasonally adjusted 2021-2023In October 2023, the civilian labor force amounted to 167.73 million people in the United States.

That computes roughly .8  x  167,730,000 x .1  + .5 X 167, 730,000 x .19 JOBS requiring a 'JUST TRANSITION' of 

 -- 13.4 MILLION JOBS PLUS 15.9 million Potentially lost.

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Just Transitions for Energy workers?

2. Oil and Gas extraction includes 619 reporting workplaces with 

-- 126,188 JOBS. Petroleum and Coal refining had fewer facilities (358) and employees (106,450).

That does not count 500,00 auto mechanics and 157,000 gas station attendants impacted by transition from fossil fuel based vehicles.

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Just Transition for Military Industrial Complex

The US military employs 700, 000 civilian and 2 million military personnel directly.

National Defense Industrial Association, in 2021 the domestic DIB included nearly 60,000 companies

GPT vs Collge grad -- SAT -- and Labor Market Performance Contest

 

GPTs are GPTs: An Early Look at the Labor Market Impact Potentialof Large Language Models

Abstract 

We investigate the potential implications of large language models (LLMs), such as Generative Pretrained Transformers (GPTs), on the U.S. labor market, focusing on the increased capabilities arising from LLM-powered software compared to LLMs on their own. Using a new rubric, we assess occupations based on their alignment with LLM capabilities, integrating both human expertise and GPT-4 classifications. Our findings reveal that around 80% of the U.S. workforce could have at least 10% of their work tasks affected by the introduction of LLMs, while approximately 19% of workers may see at least 50% of their tasks impacted. We do not make predictions about the development or adoption timeline of such LLMs. The projected effects span all wage levels, with higher-income jobs potentially facing greater exposure to LLM capabilities and LLM-powered software. Significantly, these impacts are not restricted to industries with higher recent productivity growth. Our analysis suggests that, with access to an LLM, about 15% of all worker tasks in the US could be completed significantly faster at the same level of quality. When incorporating software and tooling built on top of LLMs, this share increases to between 47 and 56% of all tasks. This finding implies that LLM-powered software will have a substantial effect on scaling the economic impacts of the underlying models. We conclude that LLMs such as GPTs exhibit traits of general-purpose technologies, indicating that they could have considerable economic, social, and policy implications. 

Krugman: Autoworkers Strike a Blow for Equality

text only version:

original: 

It’s not officially over yet, but the United Auto Workers appear to have won a significant victory. The union, which began rolling strikes on Sept. 15, now has tentative agreements with Ford, Stellantis (which I still think of as Chrysler) and, finally, General Motors.


All three agreements involve a roughly 25 percent wage increase over the next four and a half years, plus other significant concessions. Autoworkers are a much smaller share of the work force than they were in Detroit’s heyday, but they’re still a significant part of the economy.

Furthermore, this apparent union victory follows on significant organized-labor wins in other industries in recent months, notably a big settlement with United Parcel Service, where the Teamsters represent more than 300,000 employees.

And maybe, just maybe, union victories in 2023 will prove to be a milestone on the way back to a less unequal nation.




Some history you should know: Baby boomers like me grew up in a nation that was far less polarized economically than the one we live in today. We weren’t as much of a middle-class society as we liked to imagine, but in the 1960s we were a country in which many blue-collar workers had incomes they considered middle class, while extremes of wealth were far less than they have since become. For example, chief executives of major corporations were paid “only” 15 times as much as their average workers, compared with more than 200 times as much as their average workers now.

Most people, I suspect, believed — if they thought about it at all — that a relatively middle-class society had evolved gradually from the excesses of the Gilded Age, and that it was the natural end state of a mature market economy.


However, a revelatory 1991 paper by Claudia Goldin (who just won a richly deserved Nobel) and Robert Margo showed that a relatively equal America emerged not gradually but suddenly, with an abrupt narrowing of income differentials in the 1940s — what the authors called the Great Compression. The initial compression no doubt had a lot to do with wartime economic controls. But income gaps remained narrow for decades after these controls were lifted; overall income inequality didn’t really take off again until around 1980.

Why did a fairly flat income distribution persist? No doubt there were multiple reasons, but surely one important factor was that the combination of war and a favorable political environment led to a huge surge in unionization. Unions are a force for greater wage equality; they also help enforce the “outrage constraint” that used to limit executive compensation.

Conversely, the decline of unions, which now represent less than 7 percent of private-sector workers, must have played a role in the coming of the Second Gilded Age we live in now.



The great decline of unions wasn’t a necessary consequence of globalization and technological progress. Unions remain strong in some nations; in Scandinavia, the great majority of workers are still union members. What happened in America was that workers’ bargaining power was held back by the combination of a persistently slack labor market, with sluggish recoveries from recessions and an unfavorable political environment — let’s not forget that early in his presidency, Ronald Reagan crushed the air traffic controllers’ union, and his administration was consistently hostile to union organizing.

But this time is different. Research by David Autor, Arindrajit Dube and Annie McGrew shows that a rapid recovery that has brought unemployment near to a 50-year low seems to have empowered lower-wage workers, producing an “unexpected compression” in wage gaps that has eliminated around a quarter of the rise in inequality over the previous four decades. The strong job market has probably encouraged unions to stake out more aggressive bargaining positions, a stance that so far seems to be working.

By the way, I constantly encounter people who believe that the recent economic recovery has disproportionately benefited the affluent. The truth is exactly the opposite.

The political ground also seems to be shifting. Public approval of unions is at its highest point since 1965, and Joe Biden, in a presidential first, joined an autoworker picket line in Michigan in September to show support.

None of what’s happening now seems remotely big enough to produce a second Great Compression. It might, however, be enough to produce a Lesser Compression — a partial reversal of the great rise in inequality since 1980.



Of course, this doesn’t have to happen. A recession could undermine workers’ bargaining power. If Donald Trump, who also visited Michigan but spoke at a nonunion shop, returns to the White House, you can be sure that his policies will be anti-union and anti-worker. And Mike Johnson, the new speaker of the House, has an almost perfect record of opposing policies supported by unions.

So the future is, as always, uncertain. But we might, just might, be seeing America finally turn back toward the kind of widely shared prosperity we used to take for granted.