Commentary: A conundrum of capitalism - we want high wages, cheap goods

The Kansas City StarMarch 19, 2013 

20080508 Budget meals

NOTARIANNI — MCT

The conundrum of capitalism is finally easing its tight hold on the economy.

The first part of the conundrum is the primal drive of most consumers to spend as little as possible on goods and services.

We wait for sales, gather coupons, use every merchant reward program available, start and stop services to get a better deal, buy in bulk, haggle when we can and complain endlessly about prices.

We love being cheap.

The second part is that to give us cheap goods and services — and still make a profit — companies hold down wages and salaries and devise any way possible to eliminate jobs.

In recessions, the conundrum of capitalism turns into a deadly economic vise. Cheapskate consumers won’t spend and stingy companies won’t pay. And vice versa.

Call it a feature of the free enterprise system that everybody trying to do the best for themselves becomes self-defeating.

Jerry Heaster, the former and now late business editor of The Star, wrote a column about the conundrum of capitalism in 1992. Pushing the concept to its max, he contended it was “America’s mass self-delusion that you can live life on the cheap and still enjoy a well-paying job.”

More recently, stung by disappointing North American sales, one company CEO actually called out American consumers for being cheap. Rick Goings of Tupperware Brands said in an earnings call that “the USA is basically a Wal-Mart market.… American consumers “buy price. Europe buys quality, Japan quality.”

As Goings indicates, the conundrum still has a grip. Perhaps because in the Great Recession and continuing into the slow recovery, it bit the economy harder than in past contractions.

The recession officially ended in June 2009. After previous recessions, robust job creation, household wealth and stronger income growth revived in a matter of months. Not this time.

In this recession, the slow recovery hasn’t been at all kind to consumers. But per the conundrum, you can make a good argument that they snapped the wallets and purses shut because companies have held down and cut wages — not just a little but a lot.

A Labor Department report last week showed that in 2012, inflation-adjusted hourly wages actually fell 0.6 percent. And that followed a revised 0.6 percent decline in 2011. Only the 1993-1995 period was worse for American workers.

In 2007, median household income topped $54,000. It’s still around $50,000.

The recovery, however, certainly has been kind to companies. Although growth has been slow, it’s still growth. Many companies have been making good profits for quite some time.

Contrast the rise in company profits with the barely rising growth in income. Looking back further, profit increases began outpacing incomes around 2000.

Americans seem to be noticing the gap between profits, wages and jobs.

In a Gallup Poll released last week, 71 percent of respondents backed raising the minimum wage to $9 an hour.

Professors in the economics department at the University of Missouri-Kansas City recently conducted a study of repealing the prevailing wage laws for construction in Missouri. The study touches on the conundrum of capitalism by putting a number on how downward pressure on wages can be self-defeating.

One of the study’s conclusions was that repealing the prevailing wage laws “would cost the state of Missouri and the residents of Missouri between $300.3 million and $452.4 million annually in lost income.”

Income, of course, that could be used by workers to buy goods and services.

In good times, the conundrum’s force over the economy weakens. With healthy consumer demand for goods and services, rising prices, profits and wages, everybody’s happy.

And it appears that’s what is finally happening.

The recent upticks in home, retail and auto sales show that consumers may be opening their pocketbooks and wallets a bit. And the surprisingly good February jobs report also showed rising wages for the month. Maybe companies are finally starting to deploy their profits.

That can only further help consumers get back on their feet and spend even more.

Let’s hope so. And we won’t have to bother with the conundrum of capitalism until the next recession.

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