U.S. Cost Of Living On The Rise

The cost of living is growing at a rate unseen since the early nineties, according to a recent report by the U.S. Department of Labor. And wages aren't keeping up. William Spriggs, professor of Economics at Howard University, explains why the gap between earning and spending power is increasing by so much, and so fast.

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LYNN NEARY, host:

I'm Lynn Neary, and this is Tell Me More from NPR News. Michel Martin is away. Just ahead, we'll discuss how economic tough times and the lack of jobs in Puerto Rico are causing many to leave the island. But first, we're going to take a broader look at the U.S. economy.

By now, you've recognized that everything is more expensive, not your just gas and grocery bill. Prices were up higher than they've been in more than a decade. The government recently reported the consumer price index for July was 5.6 percent higher than a year ago. That's the biggest annual increase since 1991. At the same time, wages are stagnant.

Joining us now to talk more about the economy is William Spriggs, chair of the Department of Economics at Howard University here in Washington. And welcome to the program, Professor Sprigs.

Dr. WILLIAM SPRIGGS (Chair, Department of Economics, Howard University): Thank you for having me.

NEARY: What do these numbers tell us about the economy now?

Dr. SPRIGGS: Well, they show one of the real weak points we've had and what we've thought was an expansion. Over the last seven years, the economy has grown, but the incomes of Americans haven't kept up with the inflation of the cost of living. So we're actually going to go into the slowdown with people being worse off than they were in 2000, when we were supposed to have been at a peak. Typically, when we go into a recession or a slowdown, we've actually had gains, and people are just sliding back to what might be considered more normal.

NEARY: So this is kind of shocking to people, but does any of this data surprise you?

Dr. SPRIGGS: Well, it's shocking to economists. We have not had an expansion where the median income of households has not improved, so that's shocking. The result has been that Americans have gone into debt heavily in order to keep their lifestyles up, keeping pace with inflation by borrowing. We now see this through the debt problem that we're having, but that's not sustainable. So that's a big cause of concern as we look forward to how we would fashion the recovery out of this because the consumers are really strapped.

NEARY: Well, why has this happen? Why have wages stagnated while costs have gone up?

Dr. SPRIGGS: Well, there a lot of different reasons. One is this was a very unique recovery in that, if you look at the manufacturing sector, we continued to lose thousands of jobs, even though the economy was supposed to be expanding, even in those areas that you would have hoped would have been helped by the housing market. So part of the drag is the amount of switch and investment by American firms, outsourcing and sending jobs overseas.

And then American corporations actually were making more money sort of on the finance side than they were on the actual production side. So even for workers who aren't in manufacturing, there were downward pressures because companies were trying to squeeze as much profit as they could out of the system. So we saw sort of a record shift in the share of income that went to corporate profits and to business owners' income and away from wages.

NEARY: And who's most effected? Is it low-wage workers, or really, is it everyone?

Dr. SPRIGGS: It really is everyone. The bottom 90 percent of the American...

NEARY: The bottom 90 percent.

Dr. SPRIGGS: Earning distributions. So when someone says who's rich? It's those of us in the bottom 90 aren't rich.

NEARY: You know, as you've been saying in recent years, our economy has been fueled by consumer spending. Do you think people's expectations of what they can really afford to buy as opposed to putting on their credit card, let's say, are the expectations beginning to catch up with reality?

Dr. SPRIGGS: I think they are. That's the big fear because, if the American consumer actually bought to the level of their income with stagnant wages, it means that the economy would go into a huge stall. It means that we need to be prepared as a nation for quite a bit of intervention from the government in order to keep the economy afloat.

It isn't possible or desirable to have the consumer pull us out because, for consumers to do it, it means consumers would have to go into debt. We just have gotten so spoiled with companies that celebrate having wages not go up, and that's not a formula for advancement. In the past, we've always had incomes go up, and we had sort of a healthy buildup of the economy. In this case, we didn't have that during these seven years under George Bush.

NEARY: And there is only so much the government can do, though. I mean, what role can business play in this? I mean, what really realistic solutions are there for this?

Dr. SPRIGGS: Well, the government plays a big role because the government is another one of those factors within the economy in terms of consumption. The government has the ability to go into debt in a way that households or businesses do not. So the government has the ability to build roads, to continue to build infrastructure even in the face of consumers having problems, and that, of course, creates jobs.

The government has the ability to help out with education, a major infrastructure expenditure that took placed in the 1960s that helped improve the skills of the American workforce and got us to the 1990s with a very high skilled labor force. So we have to continue to look to the government to make the kind of investments that can give us a growth path that would be sustainable.

NEARY: Professor William Spriggs is the chair of the Department of Economics at Howard University. He joined us from Georgia Public Broadcasting in Atlanta. Thanks so much for being with us, Professor Sprigs.

Dr. SPRIGGS: Thank you.

NEARY: OK.

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