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September 27, 2006

 

BUSH ADMINISTRATION TO THE AMERICAN PEOPLE:

“Who are you going to believe, us or your own wallet?”

 

Dear Democratic Colleague,

 

In July, President Bush’s chief economic advisor Allan Hubbard said, “obviously, it’s frustrating to us that the American people don’t recognize how well the economy is doing.”  Mr. Hubbard would do better to ask the question, to paraphrase Chico Marx, “who are you going to believe, me or your own wallet?”

 

The truth is, the Bush administration is partly right.  By some measures, the economy overall is doing well.  Growth in GDP, aggregate national income, and productivity have all been strong since the end of the 2001 recession.  The fundamental problem is that the vast majority of American workers have seen little to no benefit from the “strong” economy of the past five years. 

 

Below is a link to a report prepared by the Democratic Staff of the Financial Services Committee, which helps explain what has been happening to workers in the real Bush economy.    Here are some of the important facts:

 

  • Real wages, adjusted for increases in the cost of living, have declined.  Workers are more productive, but they aren’t being compensated for their higher productivity, as they have been in every other period in our economic history.  Federal Reserve Chairman Ben Bernanke recently told the House Financial Services Committee that wage increases up to the level of productivity growth would not be inflationary and therefore agreed that there is room for substantial increases in wages in the current environment.

 

  • Faced with this evidence, the Republicans have countered that the “total compensation” that workers receive has increased.  This is simply an effort to avoid the topic of falling wages.  In reality, the increases in total compensation are due to higher contributions for health insurance premiums, increased pension fund contributions, and corporate accounting for stock options -- none of which translate into higher take home pay for most workers or make them better off in any meaningful way.  In fact, the Federal Reserve’s most recent economic report to Congress indicates that higher pension payments are not an actual boost in payments to workers, but are simply a shift in the corporate balance sheet to “bolster pension assets” in order to meet existing obligations under PBGC rules.  According to data provided by the Federal Reserve, take-home pay is a declining share of total compensation, while health insurance, something that is costing employers and workers more to provide the same benefit, is the fastest growing portion of compensation.

 

  • The bottom line is that virtually all of the increased wealth generated by a growing economy since 2001 has gone to corporate profits and the very small group of individuals who stand to benefit the most from corporate profits.  While workers’ share of national income has declined by nearly 3% since 2001, the corporate profit share has increased by nearly 6%, an extraordinary shift by historically standards.  The result has been an unprecedented rise in income inequality.  While the wealthiest 10% of families have seen strong gains in real income, the remaining 90% have seen their real incomes fall since 2001.  And as incomes fell for the vast majority of families, the very wealthiest in our society, the 14,400 families making more than $5 million a year, enjoyed income gains of nearly 14%.

 

It’s no mystery why a majority of Americans say they are not better off even as the overall economy continues to grow.  By the measures that matter most, they aren’t.

 

                                                                                                               

                                                    BARNEY  FRANK

 

Report:  How Workers are Faring in the Real Bush Economy 

http://www.house.gov/banking_democrats/ReportJobsandWagesinBushEconomy22Sept06.doc

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