Here we go again: Morning in America

July 12, 1996|By John Judis

OF ALL HIS Democratic contemporaries, Bill Clinton understood most clearly the paradox of the Reagan boom. While new jobs multiplied and overall income rose, the real wages of the average American lagged, and the gap grew not only between the bottom and the top, but between what Mr. Clinton called ''the forgotten middle class'' and the top. In 1992, he made this paradox the focus of his economic program and his case against George Bush.

Four years later, running for re-election, the president has declared the problem solved. Mimicking Ronald Reagan's ''morning in America'' campaign of 1984, Mr. Clinton is heralding what he calls ''the most solid American economy in a generation.'' When a reporter asked him this month about the predominance of low-paid service workers among the economy's new hires, he replied, ''We believe that there is not only a stabilizing of the economy but a stabilizing upward of the economy.''

In fact, today's economy suffers from the same maladies as the )) Reagan-Bush economy of the '80s. The U.S. is in the fifth year of an economic recovery, but real wages have increased only slightly, not enough to make up for the decline in the previous recession; and income inequality has widened.

If anything, the Clinton economy is slightly weaker. Unemployment is higher than it was during the beginning of the Bush administration; economic growth is slower than during the Reagan boom; and, while the budget deficit has shrunk, the trade deficit has grown.

One measure of underlying weakness is average real wages. From May 1995 to May 1996, those of private, nonsupervisory workers rose less than 1 percent. Real wages were about 4 percent lower than in May 1988, the peak of the Reagan-Bush recovery.

An even better measure is median wages. Average-wage figures hide the fact that some workers at the top of the pay scale are earning much more, while most workers are making less. Median wages show what the large number of middle-level wage earners are making. In the latest Bureau of Labor Statistics survey, real median weekly earnings actually declined by .1 percent from the first quarter of 1995 to the first quarter of 1996.

According to a forthcoming report from the Economic Policy Institute by Ruy Teixeira and Joel Rogers, median hourly wages fell a startling 3.3 percent from 1992 through 1994. This decline shows that wage inequality has grown even during the Clinton recovery.

If you doubt it, look at the study released last month by the Census Bureau of the Commerce Department, titled ''A Brief Look at Postwar U.S. Income Inequality.'' According to the study, the ratio of income in the bottom quintile to the top quintile went from 10.2 in 1968 to 12.5 in 1992 and to 13.6 in 1994 -- an enormous leap in the first Clinton years.

From 1992 to 1994, average real income remained constant among the bottom three quintiles, while shooting up among the highest fifth and the top 5 percent. Income rose .08 percent among the forgotten middle class of the third quintile and 19.9 percent among the top 5 percent.

Wage inequality probably hasn't increased as dramatically in the last two years of President Clinton's term. As unemployment has fallen, labor shortages have undoubtedly forced up some workers' wages. Were the current recovery (still flaccid by standards of the last four decades) to continue for another four years and pick up speed, then wages at the bottom might rise significantly. But that is not likely to occur.

First, there are political obstacles. Alan Greenspan, whom Mr. Clinton just reappointed to a six-year term, won't let unemployment drop much lower. The inflation-obsessed Federal Reserve chairman has raised interest rates whenever the economy has threatened to grow faster than an anemic 2.5 percent, and is expected to begin raising them again next month slow the economy and to prevent labor shortages from driving up wages and then prices.

Then there are structural obstacles to prolonging the recovery. If the U.S. follows a stimulative strategy unilaterally, without getting other industrial countries to cooperate, it could threaten the dollar -- either as capital flows out of the U.S. toward higher interest rates overseas or as greater consumer demand in the U.S. increases imports and the trade deficit. To defend the dollar, the U.S. will eventually have to raise interest rates.

Then, there is the peculiar U.S.-Japan relationship, which President Clinton has failed to alter. Treasury Secretary Robert Rubin may already have doomed the current recovery when he agreed last year to a Japanese strategy of forcing up the value of the dollar in relation to the yen. By increasing purchases of American Treasury bills, the Japanese have helped keep down American interest rates in an election year, but in the long term, it will have exactly the opposite effect.

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