Since the global recession ended, economic forecasters have been trying to call the Next Big Crash that would once again drag the world back into the sewer. It was going to be Europe. No, make that China. Or a cascading collapse of commodity prices.
But reality has been more complicated. The world hasn't fallen apart, if you look at the top-line growth figures. GDPs are expanding, bond markets are functioning, stocks are rising, and the global economy certainly seems to be working. But it's not quite working for a certain slice of the world economy commonly known as humans.
The markets missed the big meltdown. But labor got the big muddle-through.
Let's take a quick globe-trot: The EU staved off the worst fears of financial apocalypse, but unemployment has skyrocketed, particularly in Spain, Greece, and Italy. China has somehow juggled an ominous housing market and a glut of credit with a state capitalism model, while nonetheless nailing most of its growth targets. But it's still struggling to shift its economy from a making-things model, which argues for an artificially cheap currency, to a buying-things model, which would require that Chinese families have more (and more valuable) money. Japan, two decades into a historic run of high debt and slow growth, has core inflation at a 15 year high and the Nikkei stock index rose 57 percent last year, even more than the Dow, but its labor markets are still famously broken for young people.
The U.S. has experienced a similar two-speed recovery. Unemployment is still alarmingly high, and job growth is failing to make a deeper impact on the long-term unemployed. But business profits and stocks have seen ridiculous gains: In 2013, the stock market (at least, as measured by the Dow and the S&P 500 indices) had its best year since the mid-1990s. The stock market's run is good news for anybody with a portfolio, but 80 percent of stock wealth is held by the richest 10 percent of households. About half the country isn't invested in the stock market at all.
This gap between the stock market and the labor market isn't subtle. It's inspired a loud national debate about economic opportunity and inequality that's evolved through a sequence of memorable digits. In 2011, Occupy Wall Street focused our attention on the 1 percent. In 2012, Mitt Romney mocked the 47 percent (roughly, the share of households poor enough to not owe federal income taxes) and lost with, ironically, precisely that share of public support.
In 2014, Democrats want to shift our attention to the 11 percent. That's the share of American workers who stand to get a raise if we lift the minimum wage to $10.10, as President Obama has proposed. But as Jordan Weissmann has explained, the minimum wage isn't necessarily the best weapon to brandish in the war on low wages. It is, rather, a weapon we happen to have—and a fight that Democrats welcome in an election year.
The true origins of this global schism between labor and capital, which is truly worldwide are deep: The globalization of multinationals and supply chains has replaced jobs in rich, expensive countries that can be done elsewhere; technology has replaced routine-heavy jobs; intergenerational mobility in the U.S. is hamstrung by unequal access to education and an alarming rise in single parents among poorer households, meaning the children who need the most help getting ahead often get the least. None of these things are fixed if we raise the minimum wage to a level that barely earns $20,000 a year in a full-time job. (That's not an argument against raising the minimum wage. It's a call for modest expectations.)
The story of 2013 will be the story of 2014 and many years to come. It is this tension between labor and capital, between stock markets and job markets, and the solution, if there is one, is far too complicated to fit legibly on a mid-term election sticker. Around the world—and, notably, in Europe, Japan, China, and the U.S.— the question is how to return the fruits of economic expansion to people. Somewhere along the way, we have forgotten how to make growth work for workers.
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