Kevin Drum is right to call median wages "Obama's biggest challenge" and remind that long-term growth is fundamentally reliant on consumer spending. And consumers can't spend if they can't earn. For awhile, that shortcoming was masked by a precipitous rise in consumer debt (some argue that both the tech and housing bubbles were both manifestations of the credit bubble, which is only now popping), but that band-aid has been ripped off the economy. Cue Kevin:
The problem, fundamentally, is inequality. The rich are making so much money that there's not enough left for wage growth among the working class. But here you're dealing with a lot of little decisions -- how much an individual employer decides to pay an individual employee -- that, when examined in the aggregate, paint a clear macro trend of wage stagnation. As such, there's no single mechanism you can point to. Some blame the pressure of rising health costs which have eaten wage increases. But that's not a sufficient explanation. Others argue that the rich have begun amassing more of the wage gains from rising productivity. But that lacks an obvious cause -- it's just another way of saying we're seeing rising wage inequality. Others name unions, or culture, or politics, or deny the trend altogether. And none believe that the underlying mechanism, or basket of mechanisms, is particularly amenable to government intervention. The potential implication of that is a little weird: You could approximate more equal growth through simple redistribution, taxing the rich and sending out checks that assure the sort of median finances we want to see. But creating a norm of government wage support for the middle class is fairly far outside our ideological traditions. On the other hand, it's not a good scene for the rich to capture so much of our economic growth that the bottom 90 percent see stagnant wages. And no one wants the government dictating wage rates. It's a hard problem.
One way or another, there's really no way for the economy to grow strongly and consistently unless middle-class consumers spend more, and they can't spend more unless they make more. This was masked for a few years by the dotcom bubble, followed by the housing bubble, all propped on top of a continuing increase in consumer debt. None of those things are sustainable, though. The only sustainable source of consistent growth is rising median wages. The rich just don't spend enough all by themselves...How do we make this happen, though? I'm not sure.That the $64,000 question, innit? There's lots of smart thinking about how to improve economic security. We know how to do that. So too with transfers. We could make middle class Americans wealthier through tax credits and stimulus checks if we so chose. But policy experts are rather less surefooted on how to raise wages. In part because it's not exactly clear why wages have stagnated. It's not that the economy has shrunk, or that productivity has slowed. GDP growth has been more than rapid enough to sustain growing median wages. But median wages haven't grown. Rather, the rich have gained a lot, the upper middle class a little, and everyone else has stagnated.
The problem, fundamentally, is inequality. The rich are making so much money that there's not enough left for wage growth among the working class. But here you're dealing with a lot of little decisions -- how much an individual employer decides to pay an individual employee -- that, when examined in the aggregate, paint a clear macro trend of wage stagnation. As such, there's no single mechanism you can point to. Some blame the pressure of rising health costs which have eaten wage increases. But that's not a sufficient explanation. Others argue that the rich have begun amassing more of the wage gains from rising productivity. But that lacks an obvious cause -- it's just another way of saying we're seeing rising wage inequality. Others name unions, or culture, or politics, or deny the trend altogether. And none believe that the underlying mechanism, or basket of mechanisms, is particularly amenable to government intervention. The potential implication of that is a little weird: You could approximate more equal growth through simple redistribution, taxing the rich and sending out checks that assure the sort of median finances we want to see. But creating a norm of government wage support for the middle class is fairly far outside our ideological traditions. On the other hand, it's not a good scene for the rich to capture so much of our economic growth that the bottom 90 percent see stagnant wages. And no one wants the government dictating wage rates. It's a hard problem. 
