When it became news in 2014 that 93 percent of the growth from the depths of the Great Recession had gone to the wealthiest of the country, a slow burn began among the “other 99 percent.” While there had been a modest and steady recovery in rates of employment, there was no increase in income. Wages were flat and would remain so until slight improvements began to show up in late 2015. Annual reports of slow growth became a steady beat in the news. Real growth — that is, growth discounted for inflation — averaged 2.3 percent for the six years following the upturn that started late in 2009. During the same period, wage increases averaged 1 percent. Increases in executive pay averaged almost 11 percent.
{mosads}Working Americans were effectively left out of whatever benefits accrued in the recovery and were anxious as the recovery proceeded. The reaction wasn’t just the widespread employment insecurity. Workers appeared to perceive a corporate culture that increasingly viewed workers as commodities. In the extreme, corporate America represented exploitation. Corporations had shed countless jobs only to hire their help as contract workers who enjoyed no job benefits and no job security.
Most of the economic recovery that took place from 2009 to 2015 was in the stock market as portfolios regained lost ground. The movement was so extreme the market began to look like another bubble, not unlike the collapse of the housing market. This simply fueled the popular anxiety. Many observed that stock market increases could only go so far before the economy had to improve enough to justify the stock market increases. Corporate treasuries were restocked with cash because the slow recovery allowed slow and deliberate hiring policies to be followed while sales gradually recovered. Wage increases were no problem because the nominal unemployment rate was clearly understated.
Then, in the middle of 2014, something highly unusual took place. Oil prices started to decline. The Organization of the Petroleum Exporting Countries (OPEC) announced that its members were going to increase and sustain high levels of production in “order to maintain market share.” Their idea was to drive prices down and squeeze out marginal producers, primarily, the fast-growing fracked oil from the U.S. As oil prices went from $107 a barrel in June 2014 to the most recent price below $30, American households enjoyed the largest single increase in marginal income experienced in years as an average of 3 percent was being added to discretionary spending.
Americans have shown remarkable restraint in dealing with this windfall. It is estimated that only one-third of it has gone into current spending. Most of that has been purchasing new vehicles or eating out more often. Two-thirds has gone toward savings or debt reduction. Meanwhile, the business elites, in order to “keep the game going,” used corporate treasuries to buy back their own stock. These were not investments in new businesses or the hiring of more workers; the buyback programs were to bolster stock prices.
Then, they started actively complaining that President Obama was to blame for slow growth and this became the mantra for the Republican majority in both houses of Congress. One can only guess that the idea was a part of the “big lie” theory, repeating an idea so often that people begin to believe its veracity.
This time, however, the average worker was not buying it. Collectively, without any noticeable urging by either party and very few economists, the consumer sector of the economy began dictating the terms going forward. Inflation would be kept in check by purchasing restraint. That has thrown the Federal Reserve and government officials into fits: They live for inflation. The economy doesn’t function without inflation and higher growth rates spurred inflation. Imagine if of all that government debt had to be paid off in dollars that are worth more now than when loans were originally made?
Executive pay increases could not be justified unless growth rates topped 3 percent and getting to 3 percent required consumers to spend all their disposable income. The savings on energy costs would easily boost a 2.3 percent rate to 3 percent, so the consumer had to be persuaded to spend. That is what is going on now.
It is neither fair nor accurate to suggest that the average American worker thinks as a collective. So, suggesting that folks are sitting around their kitchen tables imagining how they might be strategic in improving their collective lot is disingenuous. But there are few generalities that can be drawn. First, Americans’ collective insecurity shows up in polls and explains spending restraint. Second, their collective failure to simply spend the windfall from oil price declines has left policy makers and businesspeople in a quandary. Third, the absence of windfall spending and the gradual improvement in the economy may actually force business to pay up. If the average household continues as it has for the past year and a half, their collective lot will only get better. Employment is low enough so that higher wages are creeping in. Public disgust with income inequality is making it difficult for business elites to self-aggrandize. Who ever thought that the workers could strike back?
Russell is managing director of Cove Hill Advisory Services.