The Truth

From the Baltimore Sun

Taking stock

May 14, 2006

The whispering around the water cooler is back these days - chatter about fattened 401(k)s, lucky stock picks and such. U.S. stock market bulls have run far enough this year that the venerable Dow Jones Industrial Average last week hit a six-year high and threatened to eclipse its all-time peak - before retrenching at the end of the week.
The Dow, of course, is just a slice of the investment world. The broader S&P 500 and the tech-heavy NASDAQ indexes, also still off their highs set before the 2001 bust, are not doing as well as the Dow this year. If a certain exuberance has returned to the financial markets, there appear to be at least some doubts - and, in any case, the benefits have been enjoyed only narrowly.

While market indexes say capital is doing pretty well, other measures indicate labor is not - continuing to widen the split between what's good for Wall Street and what's good for Main Street. Unlike in the 1990s, this boomlet seems to have left behind all but the well-off. Or as the labor-oriented Economic Policy Institute puts it: "The economy is doing fine, but most of the people working in it aren't faring so well."

The institute recently noted this stark contrast: U.S. gross domestic product rose at a sizzling 4.8 percent annualized rate in the first quarter of this year, the fastest pace in more than two years - while worker compensation increased by just half that rate, 2.4 percent, the slowest pace in seven years and behind the rate of inflation. The institute also notes that wage growth has been decelerating since 2000 - and that, despite recent signs that wages are picking up, real hourly wages (wages after inflation) were about the same last month as in November 2001.

Moreover, recent studies show that overall income inequality and the percentages of those living in poverty and just above the poverty line have been increasing - as has average household debt, with a growing share of families struggling to keep up with just the basics.

This, of course, results from a complex brew: U.S. tax cuts disproportionately skewed toward the top earners (such as the extension of the dividend and capital gains tax rates), millions of Asian low-wage workers joining the global manufacturing system and the flow of U.S. and international investment toward them, deep cuts in middle-class U.S. jobs and benefits, and a federal minimum wage that has not been raised in almost nine years. Add in steeply higher gas prices and rising interest rates, and you've got a lot of working people under growing economic pressure.

No wonder that March polling by the Gallup Organization showed that about two-thirds of Americans believe the economy is getting worse. What happened to the trickle-down economics espoused by the Bush administration? The reality is more like trickle-up. Wall Street may be frothing with growth and profits, but too many Americans have been left out of the celebration.

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