Mitt Romney said something that caught my attention yesterday in an otherwise unremarkable interview with Bloomberg Businessweek. Asked whether the loss of 650,000 public sector jobs has been a positive development, Romney replied:
Well, clearly you don’t like to hear [about] anyone losing a job. At the same time, government is the least productive—the federal government is the least productive of our economic sectors. The most productive is the private sector. […] And so moving responsibilities from the federal government to the states or to the private sector will increase productivity. And higher productivity means higher wages for the American worker. All right?
Well, no. Not really. Higher productivity hasn’t meant higher wages for nearly forty years, when America’s postwar “golden age” was ended suddenly by the OPEC oil crisis in 1973. After a quarter century in which wages, productivity and GDP all grew at the same 4 percent annual rate—increasing income equality and creating the middle class as we know it—the United States entered a decade of recession and high inflation in which productivity and real wage growth both collapsed.
Higher productivity returned when the economy began to grow again in 1983, but the adoption of “Reaganomics” (deregulation, deunionization, tight monetary policy and an increase in military spending that tripled the national debt) held wage growth to under 1 percent annualized until the mid-1990s. And although everything seemed to change in 1996 as the Internet technology revolution took hold (causing soaring productivity, full employment and the first significant wage growth in twenty-five years), wage growth retreated to its dismal post-1973 average by 2004, despite ever-higher productivity. That dynamic is essentially unchanged today.
It is not surprising that Romney, one of the nation’s richest men, should be so out-of-touch with this economic history. Higher productivity has been very good to the top 1 percent—especially since the bottom 99 percent stopped seeing their share of the benefits. But “higher productivity means higher wages for the American worker” is more than a misleading campaign bromide: it’s the foundation of Romney’s entire economic philosophy. If higher productivity indeed benefits the American worker in the straightforward way that Romney implies, than anything that increases productivity—fewer employees, lower wages, deregulation, outsourcing—is a net positive for the economy. (Call it the private equity school of economics.)
But this story is untrue. The divergent lines in the graph above show just how little the American worker has benefited from higher productivity since the 1970s. This widening gap represents, in no uncertain terms, the shift in the distribution of wealth from labor to capital—a shift accelerated by lower taxes, deregulation and deunionization throughout the 1980s. The income share of the top 1 percent has skyrocketed since then, reversing forty-years of increasing equality and shared prosperity stretching back to the Great Depression.
Mitt Romney has dismissed these issues as “the bitter politics of envy,” better suited for discussion in “quiet rooms”than in the mainstream media. But if real wage compensation had continued to track productivity growth after 1973 as it did during the postwar expansion, the average American worker would be paid about 40 percent more today. I think that’s something people should want to talk about, whether or not it offends Romney’s sense of propriety.