Disturbing news on the economy

Disturbing news on the economy
By Thomas Oliphant
Boston Globe Columnist
August 21, 2005

FOR MORE than a year, hard-pressed Americans have been trying to signal the political establishment that something is upside-down wrong in an economy that is producing soaring costs and flat incomes. Given the blinders associated with his fervent ideology, President Bush's deaf ear is expected and unremarkable.

It's progressive politicians who should be paying more attention. More than a hundred years ago, Charles Dickens's cockeyed optimist, Wilkins Micawber, explained to David Copperfield that the difference between happiness and misery involves the positive or negative difference between income and expenses.

The signal coming from working Americans (and retired ones, too) has been precisely that. As the government confirmed once again last week, rising costs have outpaced stagnant wages in ten of the last 12 months. The only positive news was recorded last September and in June. But that was overwhelmed by the trend that has eroded the value of the ordinary paycheck. As almost always happens in such spirals, the problem involves wages and prices. The former are as close to stagnant as it's possible to get; these days, a 2 percent raise is heralded as generous and the employee who gets one is considered lucky.

It's the prices people pay, especially for necessities, that have exploded. For more than a year, the cost of gasoline and heating oil has been soaring. And for five years, the cost of healthcare has been exploding, too, even as the value of what care people can buy has been eroded via sharp increases in deductibles and copayments.

The United States has a gigantic economy, as well as a famously mixed one. For those who simply follow the numbers, it can often seem as if good news about living costs in some sectors (clothing, food, mortgage rates) neatly balances the bad news from energy and healthcare.

Last month, however, the underlying trend of paycheck erosion became harder to ignore when the Labor Department reported that consumer prices shot up by 0.5 percent in July overall, after giving effect to areas of the economy where costs are more nearly under control.

What is worse, the Labor Department reported that the average weekly earnings of people in the private sector who are not bosses fell during July by 0.2 percent.

If that were one month's statistical anomaly, that would be one thing, but it is a continuation of a trend that Americans have been feeling for a long time. The weekly earning data that the government collects involves roughly four out of every five participants in the labor force. Last year, for the first time in a decade since the US was emerging from a much different set of problems, the weekly earnings news after adjustment for inflation was negative.

By last month, earnings were trailing costs by roughly 0.5 percent compared to July of 2004. In this age of more than one paycheck per household, this disturbing situation dovetails with the decline in median household income (half above it, half below it) over the last four years. This highlights the important fact that even before the leap in energy costs, most working families saw the limited tax relief voted in 2001 more than wiped out by higher state and local taxes as well as inflation.

More bad news is in store. The day after its report on consumer prices, the Labor Department reported that costs at the wholesale level had jumped a full percentage point, indicating that additional retail price increases are just around the corner. For months, there has been a struggle by businesses to absorb as much of these higher costs as possible before passing them on; the strain, however, is showing -- in the troubles of the auto and airline businesses and the shrinking margins in retail stores. The strain, leading to further downward pressure on pay, is growing.

The appearance of worrying inflation numbers also underlines how nearly impossible it is to imagine the Federal Reserve stopping its interest rate-raising campaign to keep inflation from exploding. That year-old strategy, however, is also likely to slow economic growth even more, without affecting the spikes in energy and healthcare costs.

The Bush administration is in an ideological straitjacket. But progressive politicians have several issues they should raise, particularly long overdue increases in the minimum wage and the earned income tax credit -- kitchen table matters that should not take a backseat to the latest fears about John Roberts.

With corporations sitting on more than a trillion dollars in idle cash, with tax breaks helping create astonishing increases in wealth at the top, the people who make this economy work deserve some cash of their own. They also need it.