The Labor Market Is Not Self-Regulating; Governments Must Support Worker’s Fight For Higher Wages is part 2 of the 2 part interview that The Real News Network has with Heiner Flassbeck, Director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD). Part 1 is in my previous post Low Wages And High Unemployment Are Paralyzing The Global Economy.
Quoting from Flassbeck’s remarks:
One should remember there is an interesting story in a new book that came out called The Assumptions Economists Make. The author shows that in 1948 there was a kind of Detroit consensus in the automobile industry which said that the workers should systematically get the productivity increase plus an inflation compensation. So the compensation should rise with inflation plus productivity. This was a good formula.
If you revise it a bit and say it should be a productivity trend, a four or five years’ productivity trend, should be extrapolated one year or two years, that should be reflected in nominal wages plus the inflation target of the economy, then you get a perfect formula to stabilize a growing economy and to get back into a growing economy. We have to relearn this lesson.
In these two interviews Paul Jay, the interviewer, interjects some of the arguments against what Flassbeck is arguing. This gives Flassbeck the opportunity to acknowledge the other side of the argument and to explain why it is wrong.
I am not nearly as sanguine as Flassbeck is that the situation can be turned around politiclly stating with the upcoming election for President and U.S. Senator from Massachusetts. Romney is so good at explaining the false economic doctrine and Obama is so weak on explaining the correct doctrine, that the electorate has a chance of falling for the wrong medicine, If even some economists are still plugging the old, failed doctrine, how can we get the public to be smarter than they are.
The only hope is that the the economists are blinded to reality because of what they perceive as their own short term financial interests, whereas the public has a chance to have their eyes opened by the current financial disaster for them.