President Trump’s chief economist, Kevin Hassett, penned a piece in the Wall Street Journal this week on how the tax cut was already pumping up the paychecks of average-wage earners. Trump and his congressional allies continue to try to gin up some love for the big tax cut from people that don’t inhabit the top 1 percent or a corner office of a big bank.
But as Paul Krugman lays it out this morning, no one’s buying it. He attributes this to the deficit impacts, Trump’s lack of credibility and, of course, the fact that any middle-class benefits from the cuts are tiny “loss-leaders,” compared with the goodies for the rich.
All true, but I’d like to drill down on one key point that I strongly suspect is in play here: the wage part of the story. Hassett throws out numbers on bonuses and a lot of (incorrect) theoretical claptrap on how higher profits must translate into higher wages, as if the rise in earnings inequality, or the well-documented split between profits, productivity and middle-class wages and incomes never occurred.
But what he and every other Republican fail to discuss is what’s happening with real pay for average workers. Below is a table I tweeted out the other day in response to Hassett’s op-ed. Since Trump has been in office, the inflation-adjusted hourly wage of middle-wage workers (blue collar, non-managers, or BCNM) is up zero percent. Because they’re putting in more hours per week, their weekly earnings are up slightly, 0.3 percent, or about $2 per week. The table also looks at the real median paycheck for full-time workers. That’s up about $1.60 between the end of 2016 and now.
At the same time, as first-quarter corporate earnings start coming in, headlines like this one from CNN are common: “Bank of America hauls in biggest profit ever.”
According to the article: “America’s second-largest bank hauled in $6.9 billion in profit during the first three months of 2018. That’s the biggest quarterly profit in Bank of America’s history, taking out the previous record set in 2011.” Part of this outsize gain resulted from a nine-percentage-point drop in the bank’s tax rate, courtesy of the tax cut.
These dynamics could change, of course. If the unemployment rate falls further and paycheck earners gain more bargaining clout, real wages could rise. But there’s an important economic wrinkle in play here: Inflation is also starting to climb a bit — nothing worrisome or unexpected in year nine of an economic expansion amid a tightening labor market. But if prices continue to grow at the same pace as wages, as they do in the table above, then the result will be continued middle-class wage stagnation.
And trust me, as someone who used to be one of the White House economists tapped to explain how our anti-recessionary programs were working, people really don’t like being told they’re doing better than they think they are. (If you really want to upset people, you can, as I foolishly tried to do, explain that things may not be that good, but they would have been worse without our interventions. Economists do “counterfactuals”; humans do not.)
Although real, middle-class wage stagnation is a profound, long-term problem, there’s something very positive about all of this: At the heart of the broad dissatisfaction with the tax cut is a widespread realization that the trickle-down tax cuts don’t work. People understand that such tax policy enriches the donor class that paid for it, but they don’t help the working class. They also bust the budget and, in so doing, threaten other parts of government that working-class people care about, such as Social Security and Medicare.
This realization comes packaged with the recognition that our politics are uniquely nonrepresentative, which, in turn, helps to explain a potential shift in the electoral winds we keep hearing more about. In other words, the pendulum swings back, and one of the things that’s pushing it is the unmasking of a lot of phony economics about how enriching the rich helps the poor and middle class.
To my mind, that’s progress.