H/t to Bigchin who sent me a link to an Asia Times column by Henry C. K. Liu:

"the Fed's new money has not been going to consumers in the form of full employment with rising wages to restore fallen demand, but instead is going only to debt-infested distressed institutions to allow them to deleverage from toxic debt. Thus deflation in the equity market (falling share prices) has been cushioned by newly issued money, while aggregate wage income continues to fall to further reduce aggregate demand.

Central bankers are savvy enough to know that ... [t]o bind money to wealth, ... [t]he solution then is to make the working poor pay for the pain of inflation by giving the rich a bigger share of the monetized wealth created via inflation, so that the loss of purchasing power from inflation is mostly borne by the low-wage working poor and not by the owners of capital

....[T]he basic problem of the global economy for the past three decades [has been l]ow wages even in boom times [that] have landed the world in its current sorry state of overcapacity masked by unsustainable demand created by a debt bubble that finally imploded in July 2007....

All the stimulus spending by all governments perpetuates this
dysfunctionality. There will be no recovery from this dysfunctional financial system. Only reform toward full employment with rising wages will save this severely impaired economy.

The entire article is well worth your reading. Liu's analysis summarizes the root of the global economic crisis in a nutshell. As I've written, there can be No Long-term Recovery without real Wage Growth. The massive injections by the Fed and the Treasury are stimulative, but they cannot determine where the liquidity ultimately winds up. For example, who knows whether TARP money has found its way via various back doors into commodity speculation -- thereby directly profiting banks/speculators while impoverishing the middle/working class taxpayers who forked over the money and will be expected to pay back the bondholders for the new national debt. I suspect the answer is more likely in the affirmative than not. Thus, the huge financial bailouts only further enrich entrenched financial wealth at the expense of the average worker -- even if the bailouts work.

Liu proposes that "the cost of wage increases be deductible from corporate income tax and make the savings from layoffs taxable as corporate income." Unfortunately, I suspect that corporate tax lawyers would be able to circumvent such restrictions fairly easily ("Oh, that income wasn't from layoffs, it was from, erm, extra unused office space"), but at this point, almost anything is worth a try.

It is both sad and outrageous that two years into this crisis, and still addressing the crisis of consumer income and demand is not even being considered. According to Satyajit Das, that is no accident:

Mancur Olson, the American economist, in his books (The Logic of Collective Action and The Rise and Decline of Nations), speculated that small distributional coalitions tend to form over time in developed nations and influence policies in their favor through intensive, well funded lobbying. The policies result in benefits for the coalitions and its members but large costs borne by the rest of population. Over time, the incentive structure means that more distributional coalitions accumulate burdening and ultimately paralysing the economic system causing inevitable and irretrievable economic decline.

Ultimately there must be a real political power realignment. Policy makers not just in the US, but around the globe need to learn that there will be no meaningful. lasting recovery unless there is real wage growth.