Wednesday, August 11, 2010
Want Fries With That Ponziconomy?
Lately, there's a refrain from some corners that real wages have risen over the last couple of years, so this isn't really a recession to be worried about, etc, etc. The chart on the left, from Richard Green's excellent blog, suggests a very different story.
It shows that the ratio of wages to national income peaked around 1970, and has been falling ever since.
Unless you want to argue that the marginal productivity of the average American has been declining for 40 years, there's something very wrong with this picture. It lends credence to my argument (and Robert Reich's
) that Americans didn't just overleverage themselves because they're venal and greedy - but, rather, because, if they wanted to tread water, they had to. It lends credence to the argument that what we don't need is more "labour market flexibility", but a radically more efficient labour market structurally.
In the big picture, what it suggests, in no uncertain terms, is a Ponziconomy: one where value is appropriated from workers, by the gears of the other components of national income - like, for example, corporate profits. You can't have a working economy where the average worker's earning less for doing more - because, of course, the incentives for investment and education dry up, the returns to human capital collapse, and savings rates implode. That's the kind of prosperity only a sucker would accept - a false prosperity in every sense of the word - one which is just a game of musical chairs.
The first graph in the linked article certainly suggests rising income inequality, a trend documented by many other sources. This specific "wage" graph, however, could be misleading. Has anyone estimated the contribution of the following phenomena: a) rapidly-rising costs for employer health plans, b) poorly-budgeted private pensions coming due, c) even the recipients of well-capitalized old-age benefits don't actually receive wages
any more, and ours is an aging population ("b" and "c" may have been controlled for in the study but I don't find any indication of that), and d) rapidly-rising non-wage benefits for the burgeoning population of government employees. I don't defend any of these sub-trends, but they do provide some context for this starkly-presented graph. If average non-wage benefits are rising relative
to average wages (and my impression is that they are, for the reasons cited and others as well), that money has to come from somewhere.
As you can see in this little graph here (http://www.economist.com/blogs/freeexchange/2010/08/labour_markets?fsrc=scn/tw/te/bl/thebigpicture)
The Economist suggests the following: non-farm employment has been plateauing for the last decade meanwhile the American population kept growing. Too many workers, not enough jobs, sure the labour market needs restructuring. Everybody would love to work less hours, but nobody would like to do it for less salary.