Galbraith Challenges Wage Gap

The Working Stiff Journal
Vol. 1 #3, November 1998
By Jackie Dana

Review of Created Unequal: The Crisis in American Pay
James K. Galbraith
New York: The Free Press, 1998

If you work for a living you aren’t probably greatly surprised that an enormous gap in wages exists in this country but what you may be surprised to find out that this is no accident.

In his new book, Created Unequal: The Crisis in American Pay, James K. Galbraith explains why the rich are getting richer while the working class keeps falling further behind. Dr. Galbraith, a professor of economics at the University of Texas at Austin, argues that low wages and underemployment are the results not of market forces but of deliberate governmental policy. Galbraith shows how the US federal government can be blamed for wage inequalities by favoring the needs of the wealthy over those of the poor.

As he explained at a book signing at BookPeople on September 23rd, with its current economic policies, the US is at “a moment of extreme crisis.” Galbraith explained that “we should get public action and get it soon. If we don’t get it, inequality will go up and we’ll lose ground on other issues of social policy” including public education and social security. Since 1970, income disparity has increased substantially. In Created Unequal, Galbraith contends that the wage gap is about to “threaten the social solidarity and stability of the country.”

A quick glance at American economic history illustrates his point. From the end of World War II through 1970, the US experienced stable economic growth; the government also enacted or maintained many policies aimed at reducing poverty and protecting less-fortunate members of society. In 1970 the government abandoned its goal of full employment, and instead channeled its energy into fighting inflation. The loss of jobs generated by the subsequent recessions began the downward spiral of inequality. Under Reagan’s administration, Galbraith describes how “the rich triumphed. Yet they did so without resuming their former positions of social obligation, without resuming their former posture of industrial restraint.”

As Galbraith explains, “the real crisis now is the underlying attack on the elderly, the poor, and the ill, and the tragic willingness of many working people to join it.” In order to maintain their standards of living, Americans are going more and more into debt. As this debt increases, workers can no longer afford to share in the support of infrastructure costs and public expenditures such as schools, roads, social security. Finding herself financially strapped, the typical American worker may resent taxes which pay for social services to the poor, while through interest payments on loans she contributes a large portion of her income to the very wealthy.

A common myth is that wage inequality can be blamed on the increasing use of computers, what Galbraith refers to as “skill-biased technological change.” As he explains, many believe that computer knowledge gives individuals a chance to get ahead, but there is little evidence to support this idea. Galbraith demonstrates in Created Unequal that the wages of those who use computers in their jobs have not experienced noticeable increases in pay.

However, the high-tech industries themselves, by building monopolies on the various technologies, have been able to earn tremendous profits, meaning those directly employed within that sector tend to be paid somewhat better than the population as a whole. In the long run, these jobs are relatively few, and does not explain why wages in other industries have suffered.

Since the problem of the wage structure stems from bad economic planning, not market forces, it makes sense that to overcome the problem the government needs to reexamine its policies. Galbraith offers a series of recommendations, chief among which is for the government to recognize the need for sustained levels of low unemployment. He recommends holding unemployment at its current rate, or even reducing it, and maintaining this level for at least five years. At that point, he said, “we’ll gradually make up lost ground.” Our current relatively low unemployment rate, he explains, “masks the huge problem of underemployment,” but if we can sustain a low rate, eventually people will be drawn out of low paying jobs into better ones.

Along with working to reduce unemployment, Galbraith advocates policies to maintain stable and low interest rates and promote reasonable price stability. He suggests that the government remove the”burden of inflation control” from the Federal Reserve, implement regular increases in the minimum wage, invest in public and urban amenities (such as parks, mass ransit, and schools), and institute universal health care. At BookPeople he suggested that the government become more supportive of labor unions and collective bargaining, for the reason that unions, along with the government, help bring the wage structure under control.

He said that his ideas have some support within the Democratic Party at the national level. Rep. Richard Gephardt (D-Missouri) has said Galbraith’s book “makes the case for a new, fairer deal for American workers, American families, the American economy, and the world.” Unfortunately, there has been lukewarm enthusiasm for Galbraith’s proposals among Texas Democrats.

Galbraith’s arguments are compelling and insightful. He offers concrete reasons for our current economic woes, ample evidence to support his position and reasonable, specific, and practical proposals to resolve them. However, as he freely admitted in a talk at BookPeople, he also desires to look out for his own class interests. He has little incentive to question the overall wage structure and the inequalities in pay which are inherent under the current system.

In the end, his suggestions, while sound and practical, would serve not to overhaul the current wage system but instead to enlarge the middle class. There will always be the very poor and the very rich, but Galbraith’s work proposes to increase the numbers of people in the middle.

The Working Stiff Journal was a free community newspaper produced in Austin, Texas and distributed across town. All of the articles were available online on the UT Watch site for many years, but they are no longer available, so I am republishing my own work here (in 2014). You can still read back issues thanks to the Internet Archive’s Wayback Machine.

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