Out of the Woods

Don't believe everything they tell you.

The Federal Reserve Bank held a conference recently in Boston on economic opportunity and inequality. Janet Yellen, Chair of the Federal Reserve Rank, addressed the meeting.

She frankly admitted that inequality has been increasing rapidly in recent years. Between 1989 and 2013 the income of the top 5% of households increased 38%. The incomes of the remaining 95% of households increased by 10% or less.

What to do? Yellen had all sorts of ideas to even out the increasing inequalities in our nation. Specifically she had three suggestions: "early childhood education, affordable higher education, and increased business ownership."

Most of these are all sensible suggestions. There exists a good deal of evidence that children's school trajectories are affected by their learning in the very first few years of life. More Head Start programs might produce a better educated workforce.

College education has become terribly expensive and is prohibitive for some people. Many other students need to work, some of them full-time, in order to afford college. If students have a full-time job and go to school full-time, the odds are that they are not going to learn a lot. There is not time or energy enough to assimilate what they read or hear in class.

I am less certain about the third suggestion that more people should go into business for themselves. That takes some money doesn't it?

But I was really struck by what chairman Yellen did not talk about. Her suggestions seem peripheral. She did not address the economic problems responsible for the growing inequality.

There is still a good deal of unemployment; many people are working part-time who would prefer to work full time.

Significant numbers of people work minimum wage jobs that do not bring in enough for people to live comfortably, let alone send their kids to college.

Since the early 1970s, working-class wages have been pretty stagnant. Employers have outsourced jobs to very low wage countries, thus setting up competition between American workers and those in different Asian countries with a much lower standard of living than ours. More and more people are not regarded as employees of the firms where they work; instead, they are 'independent contractors' or they work for subcontractors. Their employment is uncertain and intermittent. Their wages are held down by competition between subcontractors.

Continuing unemployment gives employers the upper hand when it comes to negotiating wages.

All of these assaults on working-class incomes were made possible by the concerted effort of business during the Reagan administration and thereafter to destroy the powers of labor unions. Fewer and fewer workers are represented by unions. Partly as a consequence of the unions' very precarious position, they can only offer limited protection to their members.

If we look at the society as it is, it is clear that there are some more central remedies for inequality than expanded Head Start programs: raise the minimum wage, abolish Right-to- work laws (anti-– union laws), encourage unionization, and put limits on temporary employment, subcontracting and other ways of increasing business profit and impoverishing working people.

All of this is well known. Janet Yellen, of course, knows all this a lot better than I do. Why did she not say so?

There are a number of possible reasons. If she were taking the side of the workers in the struggle between workers and employers, she would be in deep trouble with the people who have most of the power. People on the right of the political spectrum, rich corporate types, would make sure that she would soon be out of a job.

On the other hand, she does not want to agree with people on the left that so many working people are suffering because the economic system is skewed against them. As the head of an important federal agency, part of her job is to tell citizens that things are really alright and that the problems you have are open to easy fixes: combat inequality by expanding Head Start.

That is of course also what people on the right want her to do: tell everyone that it is not the fault of employers if workers's wages and incomes deteriorate every year. Our actually very serious economic problems are made to look benign if they can be fixed by expanding Head Start programs.

Here then is today's lesson: don't believe what high level bureaucrats tell you about the state of the economy and of our world. They are not to be trusted.

Don't let your employers exploit you and then tell you that it is all a problem of early childhood education.