12 ms·

Cracking the Mystery of Labor's Falling Share of GDP

stevenwoo 9y ago
The topmost comment (for me right now) says income levels for workers were flat while corporate profits were skyrocketing based on data from an article in 2011.
- bufordsharkley 9y ago
  Which isn't really an alternate hypothesis from the four discussed in the piece: > Economists are therefore scrambling to explain the change. There are, by my count, now four main potential explanations for the mysterious slide in labor's share. These are: 1) China, 2) robots, 3) monopolies and 4) landlords. ...but rather an effect. (Labor's return is declining, so of course a greater share goes to corporations.)
  - simonh 9y ago
    Specifically, to capital intensive corporations.
    - ThrustVectoring 9y ago
      Intensification in general is a good enough explanation. Straightforward economic operations get replaced with complex ones, providing more places to siphon off output. I mean, labor's share in a hunter-gatherer society was 100%. There's little a capitalist can do to grab a share of the nuts picked up off the ground and eaten. There's a lot folks can do to grab a share of the logistics involved in mechanized farming of large plots of land and shipping the produce to local markets.
      - bufordsharkley 9y ago
        An open question is how much the transition to the "knowledge economy" is changing how we work, and how we build our communities. Communities built solely around manufacturing are suffering today, while we see soaring demand for our dense urban areas (which they struggle to keep up with). This can be seen as the next progression from hunter gatherer, to agricultural, to manufacturing-centered cities. Should we expect this to continue, or will the knowledge economy come to smaller cities, too? Will VR and telecommuting affect this trend?
        killjoywashere 9y ago
        > Should we expect this to continue I think the answer is self-evident: the inland cites are undergoing apoptosis by way of opioid suicides and migration to the coasts as inland economic nutrients dwindle away. Building new cities on the coasts of Africa might be the best way to go.
bufordsharkley 9y ago
For what it's worth, I find the "landlords" explanation here extremely compelling. In the last year, I've happened upon the works of the 19th century economist Henry George (who identified landlordism as the root cause of poverty) and found his distinction between land and capital to explain many of the "paradoxes" we have in modern economics. I recommend checking out his work, but if anybody is curious about details of his economic theories, AMA.
- simonh 9y ago
  I've not paid a landlord for two decades, but it seems to me that home owners like myself compete with each other to bid up the price of property. If I earn more, that gives me more capital with which to bid for a bigger house in a better location and hopefully outbid someone else doing the same thing. So disposable income flows directly into increasing house prices.his isn't theory, it's what I've been doing for the last twenty years. Edit: I'm not complaining, this effect has dramatically increased the values of the two properties I have owned (one after the other) during that time. I fully expect to come out well ahead, but it will be a problem for my children. I expect to have to help them fund their first property purchases, perpetuating the cycle.
  - bufordsharkley 9y ago
    This effect was formalized by Joseph Stiglitz 40 years ago, with his "Henry George Theorem"[0]―namely that "aggregate spending by government on public goods will increase aggregate rent based on land value (land rent) more than that amount, with the benefit of the last marginal investment equaling its cost". This is a big reason so much of urban planning today has latched onto Value Capture of a way of financing infrastructure. In cases like Hong Kong's subway system, you can pay for world-class transit without any additional taxes, merely letting the subway capture the increases in land values that it creates.[1] [0] https://en.wikipedia.org/wiki/Henry_George_theorem https://en.wikipedia.org/wiki/Henry_George_theorem [1] https://www.theatlantic.com/china/archive/2013/09/the-unique-genius-of-hong-kongs-public-transportation-system/279528/ https://www.theatlantic.com/china/archive/2013/09/the-unique...
  - 9y ago
nabla9 9y ago
>Economists are very worried about the decline in labor’s share of U.S. national income. This is not U.S. centric problem at all. Labour share has been in decline in all OECD countries since 70's.
metaphorm 9y ago
what mystery? pay raises haven't kept up with productivity increases. there's also kinds of macro-econ handwaiving that will attempt to drill down into this issue but at a fundamental level worker pay is at the discretion of their managers. the problem is the management culture that distributes profits with extreme preference to shareholders and almost no regard at all for the workers.
- kesselvon 9y ago
  This is it. Rewards have largely gone to the upper echelons of the management tree. With globalization and automation suppressing wage growth for the majority of the population. This is why we're seeing all of the money go towards fields that: a. can't be automated and b. can't be outsourced This is also by design, as this was the Reaganite answer to the stagflation of the 70s and a reversal of the income distribution that was forcibly enacted by the New Deal.
  - BoiledCabbage 9y ago
    The default nature of society is are rich and poor. There is by default no middle class. It has essentially always been this way in society. This is because capital accumulates, and rent seeking will always scale better than labor. America had the prosperity of the 20th century due to explicit programs to create a middle class. Beginning immediately following the 1929 stock market crash with the New Deal, and through the social welfare programs of the 40s of the GI bill and mortgage lending we intentionally created a middle class and society prospered. If we as society want a middle class we need to create it. In action will remove it as things fall back to historical normal, and actively working against activities that build and support the middle class (like destroying unions) will end it faster. The other issue is the difference between short term and long term economic efficiency. Optimizing for capitol over labor will almost always provide more short term efficiency. Adding more cheap labor will almost always increase profits. But longer term our society will be always be better off if a larger percentage of our population can be educated, and financially stable enough for invention and improve productivity through technological innovation. The more people who can have an idea and join the capital class, the more efficient our economy will be. A middle class is exactly what provides this. Long term economic productivity is dependent on a middle class. Look back throughout human history, times of huge social and technological innovation almost always follow a sudden increase in free time for the average person (ie time beyond the work needed for survival).
jedberg 9y ago
The landlords one makes the most sense. Land is not elastic. It is a limited resource, and so it doesn't follow supply and demand. The supply in a city never changes, only the demand does. And building up isn't necessarily a solution -- it's exponentially more expensive to go up, because you start needing things like elevators and full time building engineers and so on. So going up only keeps things the same, as the price per square foot of going up is higher, only elevating the cost of that land. Building out also isn't a solution, because people want to be close to the city center or the things they go to the most. Self-driving cars may help with this issue in the long term, but not the short term. This blog post[0] summarizes some of the issues. [0] http://meetingthetwain.blogspot.com/2017/01/live-work-commute-2.html http://meetingthetwain.blogspot.com/2017/01/live-work-commut...
- loeg 9y ago
  > Building out also isn't a solution, because people want to be close to the city center or the things they go to the most. Self-driving cars may help with this issue in the long term, but not the short term. Self-driving cars won't help in the long term either, for the same reason traffic is terrible in sprawling cities like LA today. Fast, high-density regional transit is needed and even that is only a better constant factor. The N^2 or whatever scaling problem remains.
- hyperpape 9y ago
  Here are condos renting for $2-3k per month in downtown Raleigh on the 20th-30th floors of a relatively new development (http://www.theplazacoa.com/homesforsale.php http://www.theplazacoa.com/homesforsale.php). Now, that seems astronomically expensive for 1000 sq feet to me, being from the South, but it's cheaper than SF rents from what I hear. And plenty of buildings in Queens, Brooklyn or any US city are shorter than 100 feet. There's tons of room for more building. Building costs are not a complete explanation for the current astronomical prices. Political choices to restrict construction play a huge role.
  - bufordsharkley 9y ago
    We enact zoning laws with consideration to what we're being taxed to live and work in a high-demand, low-density environment. If a tax on holding onto unimproved land is nearly zero, we're very likely to implement zoning laws banning development, because citizens have little reason to change things. But if the holding cost increases, (say with a significant Land Value Tax) folks now have a reason to legalize development. ...Californians should consider the role of Prop 13 in its current housing crisis.
chrismealy 9y ago
1) Unions were crushed. 2) Fed induces a recession whenever wages grow (that's what inflation targeting literally means). If you read about the power labor had between WW2 and the 1970s it's so alien, it's like science fiction.
- cm2187 9y ago
  Technology and the economic emergence of formerly third world countries has done more against labor in the US than the fed and the lack of unions.
  - chrismealy 9y ago
    The plutocrats who spent forty years trying to crush the labor movement didn't think so. Foreign workers didn't cause the Volcker shock.
- bjourne 9y ago
  In a way that only moves the question. How were unions crushed? Why haven't they been able to recover?
CriticalSection 9y ago
It's not much of a mystery to crack. The chart starts in 1950 with 63.6%. In that year, one out of three American workers in the private sector were in a union. Today one out of fifteen American workers in the private sector are in a union. In the rust belt, the Wisconsin government has been waging a war against its unions, as it and other states become so-called right to work states. Insofar as this "increas[ing] the risk of social instability", one reason for this is that more and more money is flowing to capital which doesn't even know where to invest it. The main reason so much capital is idle is due to existing overproduction (which you could also call underconsumption, it's the same thing). Workers/consumers are short-changed, so can buy less, whereas more money goes to capital, to build more products - for people who can't afford them. You can see what the main problem is. Consumer debt can solve this temporarily, but if the cut of the pie stays the same, it just postpones the crisis and makes it worse. Things are fairly simple - there is an aristocracy of heirs who own rights to expropriate surplus labor time (which they call profits) from those of us who work and create all wealth. They are very well organized in industry, government, and media. They don't want the people who do the work and create the wealth, us (most of us), to be organized and as aware as they are. They say unions breed laziness, but these heirs have never worked a day in their life.
- devoply 9y ago
  Not only that, but those people as you noticed don't even know what to do with the wealth. The best thing to do would be for the government to come in expropriate that wealth, and give it out as universal income to stimulate consumption. And then for the labor to unionize again so they can keep a fair share of that wealth. To keep the engine of the economy running... as right now it's stalling under their supposedly "efficient care". At the end does such a class even need to exist, I don't really think so. The world would shed a little tear if these sorts of people disappeared tomorrow.
  - branchless 9y ago
    Nope, hand out $1000 BI a month and rent will go up by that amount, leaving the very poor even worse off. Why take from the rich to give to the poor when the way they get their money is flawed (in the main). Address the root cause: fiat issuance against land. edit: I cannot reply to you as yet again the faux HN "you're a georgist submitting too fast" has come out so here is my reply: Not that many jobs are going to disappear overnight in a step change. BI alone is totally flawed as a concept because it utterly fails to comprehend credit issuance against land as the driver of "money" creation and the effect that has on rents.
AndrewKemendo 9y ago
This debate unfortunately lends itself to the Fallacy of the Single Cause [1]. I think this article goes a long way to implicitly argue for a multi-cause reason for the problem of uneven GDP distribution. The global economy is a complex dynamic system, and doesn't lend itself to accurate modeling. So finding cause and effect is an impossible game - especially a single one. [1] https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause
VikingCoder 9y ago
We discovered that we were more efficient if we divided labor. There was a short supply of people able to do some labor, but demand was high, so wages were high. We've succeeded at that so wildly, and automated so much of our lives, that we have bountiful free time to train to be successful in modern jobs. ...while there is some specialization in modern jobs, there's a lot of jobs that are NOT THAT SPECIAL. So the pool of people who would be capable of doing them with no or a small amount of training is HUGE. So wages are low. There's no magic here, folks. Meanwhile, Capital has chased not just profits, but OWNERSHIP of profit-generating entities. Rents, right? And they've been wildly successful at it.
danieltillett 9y ago
I argue the reason is the threat of exapropriation has been lifted. I think we forget in the 21st C. how scary the Russian revolution and the Great Depression were to the owners of capital. They saw that if they didn't give labor a greater share of production they could be strung up. Their solution was to buy off labor with democratic socialism, and then once the threat of exapropriation had past (1970s), claw back the capital. They neutralised the threat of labor ever being a threat again by identifying the potential leaders and co-opting them into the upper-middle classes via universal education and scholarships for the very talented - they wanted to make sure there was no risk of another Lenin arising. All in all it has been a brilliant play, but we should not forget the rich have been advised by the best and brightest for sometime now.
- bufordsharkley 9y ago
  There's a great amount of truth to this; anyway, it's essentially what Michael Kalecki argued in 1943 in his "Political Aspects of Full Employment". Anyway, I find it unfortunate that the most frightening reform in the face of the rentier class is Marxism-Leninism, a system that simply doesn't work. It honestly seems strange that the radical proposals of Henry George (and his Land Value Tax[1] that would confiscate all rents) aren't used anymore to challenge this class. Last time Georgism infused economic reform, we had the age of trust-busting and worker protections. I hope I'm not dreaming when I think this could return. [0] http://delong.typepad.com/kalecki43.pdf http://delong.typepad.com/kalecki43.pdf [1] https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
  - danieltillett 9y ago
    Marxism-Leninism might not work as a mechanism for efficient production, but it is mighty effective in exapropriating the rich. One thing I have thought about recently is that with better ML if it would be possible today to model the economy well enough to now make Marxism work in practice. The soviets tried in the 1960s using linear algebra, but their models were not practicable. At some point it should be possible to model the economy well enough that capitalism is no longer the only viable alternative.
dalbasal 9y ago
I think that the honest answer is currently we don't know for sure. Pickety's argument amounts to (IMO) that this is the mature state of our current system. Capital generally grows faster than labour and (if it isn't spent), accumulates over time. I think he also implies that it's brought on (or exasperated by) prolonged peace. One of many ideas... "Capital" is defined (often explicitly) primarily by it's income generating potential. The iconic economist's definition of capital is factories, but most capital today is almost entirely abstract. Companies are some IP, but mostly it's just people. Contracts with people, cultures of people.. Banks are neither. Banks are mostly capital and contracts relating to capital. What does destruction of capital even mean today? I Krugman's point is tautological. If capital s big relative to labour in a company, that company is by definition labour intensive. "Capital" in modern times just means the amount of income that capital generates. Thinking in terms of factories is (IMO) just wrong if the economy isn't mostly factories. In any case, I don't think we know what's going on with any useful degree of certainty.
- bufordsharkley 9y ago
  > Pickety's argument amounts to (IMO) that this is the mature state of our current system. Capital generally grows faster than labour and (if it isn't spent), accumulates over time. From the article: > Then there’s the idea that landowners, not corporate overlords, are taking money away from workers. While analyzing the work of French economist Thomas Piketty, Matt Rognlie found that national income accounts showed an increasing amount flowing to owners of land. It's worth noting that in Rognlie's analysis, once we take away the effects of land, the return to capital ceases to outpace production. Anyway, as far as explaining the non-productive forms of capital we have so much of today―I'd simply conclude that they're not capital at all... Henry George's definition of capital, for instance, excludes them―he made a (IMO very neat) distinction between "Value from Production" and "Value from Obligation"[0] that is a very useful way for considering things. In time, things like "GDP" cease to seem very accurate or meaningful. [0] http://schalkenbach.org/henry-george/science-of-political-economy/spe214.html http://schalkenbach.org/henry-george/science-of-political-ec...
red_hairing 9y ago
no comments here about diversity and immigration increasing just as labor's share of GDP decreased?
- tptacek 9y ago
  If you read the site guidelines and follow Dan and Scott's comments (you can do that by plugging "author:dang" into the search bar below), you'll find that we're generally not enthusiastic about people injecting partisan political arguments into threads.
- norea-armozel 9y ago
  It doesn't account for the majority of wages since the wage dampening done by immigration is oddly done by legal immigration (H1b). The regular manufacturing or service industry job is more affected by outsourcing than immigration.
kristianp 9y ago
Apple is an interesting example of large company that is extremely labor efficient. I imagine Exxon would be another one. With productivity falling in the last 10 years [1], companies that are labor intensive can't grow as quickly those that can grow faster by automating their production. https://www.bls.gov/lpc/prodybar.htm https://www.bls.gov/lpc/prodybar.htm
foxyv 9y ago
The problem is that money is being redistributed from the middle class to the wealthy by mechanisms of our financial system. High taxes on labor both reduce wages and cut spending power of working Americans. Then, the money that is removed from the economy by income taxes is then re-created by the federal reserve system and lent out to banks at extremely low interest rates. This money is then lent as consumer credit which redirects wealth to those who own capital in the form of interest. Essentially Americans are forced to borrow their own money to survive until they can no longer borrow and go bankrupt. The solution is easily executed and within the power of congress or even the president. Reduce taxes to create a deficit then offset it with higher interest rates on corporate credit. Then nationalize the dividends paid out by the Fed to other banks to offset the deficit even more and start charging banks for services they receive through the Fed. Right now we essentially have a giant welfare system for banks in America that is slowly turning non-capital owning Americans into paupers through constant inflation and wage stagnation.

The topmost comment (for me right now) says income levels for workers were flat while corporate profits were skyrocketing based on data from an article in 2011.

bufordsharkley 9y ago
Which isn't really an alternate hypothesis from the four discussed in the piece: > Economists are therefore scrambling to explain the change. There are, by my count, now four main potential explanations for the mysterious slide in labor's share. These are: 1) China, 2) robots, 3) monopolies and 4) landlords. ...but rather an effect. (Labor's return is declining, so of course a greater share goes to corporations.)
- simonh 9y ago
  Specifically, to capital intensive corporations.
  - ThrustVectoring 9y ago
    Intensification in general is a good enough explanation. Straightforward economic operations get replaced with complex ones, providing more places to siphon off output. I mean, labor's share in a hunter-gatherer society was 100%. There's little a capitalist can do to grab a share of the nuts picked up off the ground and eaten. There's a lot folks can do to grab a share of the logistics involved in mechanized farming of large plots of land and shipping the produce to local markets.
    - bufordsharkley 9y ago
      An open question is how much the transition to the "knowledge economy" is changing how we work, and how we build our communities. Communities built solely around manufacturing are suffering today, while we see soaring demand for our dense urban areas (which they struggle to keep up with). This can be seen as the next progression from hunter gatherer, to agricultural, to manufacturing-centered cities. Should we expect this to continue, or will the knowledge economy come to smaller cities, too? Will VR and telecommuting affect this trend?
      - killjoywashere 9y ago
        > Should we expect this to continue I think the answer is self-evident: the inland cites are undergoing apoptosis by way of opioid suicides and migration to the coasts as inland economic nutrients dwindle away. Building new cities on the coasts of Africa might be the best way to go.

bufordsharkley 9y ago

For what it's worth, I find the "landlords" explanation here extremely compelling. In the last year, I've happened upon the works of the 19th century economist Henry George (who identified landlordism as the root cause of poverty) and found his distinction between land and capital to explain many of the "paradoxes" we have in modern economics. I recommend checking out his work, but if anybody is curious about details of his economic theories, AMA.

simonh 9y ago
I've not paid a landlord for two decades, but it seems to me that home owners like myself compete with each other to bid up the price of property. If I earn more, that gives me more capital with which to bid for a bigger house in a better location and hopefully outbid someone else doing the same thing. So disposable income flows directly into increasing house prices.his isn't theory, it's what I've been doing for the last twenty years. Edit: I'm not complaining, this effect has dramatically increased the values of the two properties I have owned (one after the other) during that time. I fully expect to come out well ahead, but it will be a problem for my children. I expect to have to help them fund their first property purchases, perpetuating the cycle.
- bufordsharkley 9y ago
  This effect was formalized by Joseph Stiglitz 40 years ago, with his "Henry George Theorem"[0]―namely that "aggregate spending by government on public goods will increase aggregate rent based on land value (land rent) more than that amount, with the benefit of the last marginal investment equaling its cost". This is a big reason so much of urban planning today has latched onto Value Capture of a way of financing infrastructure. In cases like Hong Kong's subway system, you can pay for world-class transit without any additional taxes, merely letting the subway capture the increases in land values that it creates.[1] [0] https://en.wikipedia.org/wiki/Henry_George_theorem https://en.wikipedia.org/wiki/Henry_George_theorem [1] https://www.theatlantic.com/china/archive/2013/09/the-unique-genius-of-hong-kongs-public-transportation-system/279528/ https://www.theatlantic.com/china/archive/2013/09/the-unique...
- 9y ago

nabla9 9y ago

>Economists are very worried about the decline in labor’s share of U.S. national income. This is not U.S. centric problem at all. Labour share has been in decline in all OECD countries since 70's.

metaphorm 9y ago

what mystery? pay raises haven't kept up with productivity increases. there's also kinds of macro-econ handwaiving that will attempt to drill down into this issue but at a fundamental level worker pay is at the discretion of their managers. the problem is the management culture that distributes profits with extreme preference to shareholders and almost no regard at all for the workers.

kesselvon 9y ago
This is it. Rewards have largely gone to the upper echelons of the management tree. With globalization and automation suppressing wage growth for the majority of the population. This is why we're seeing all of the money go towards fields that: a. can't be automated and b. can't be outsourced This is also by design, as this was the Reaganite answer to the stagflation of the 70s and a reversal of the income distribution that was forcibly enacted by the New Deal.
- BoiledCabbage 9y ago
  The default nature of society is are rich and poor. There is by default no middle class. It has essentially always been this way in society. This is because capital accumulates, and rent seeking will always scale better than labor. America had the prosperity of the 20th century due to explicit programs to create a middle class. Beginning immediately following the 1929 stock market crash with the New Deal, and through the social welfare programs of the 40s of the GI bill and mortgage lending we intentionally created a middle class and society prospered. If we as society want a middle class we need to create it. In action will remove it as things fall back to historical normal, and actively working against activities that build and support the middle class (like destroying unions) will end it faster. The other issue is the difference between short term and long term economic efficiency. Optimizing for capitol over labor will almost always provide more short term efficiency. Adding more cheap labor will almost always increase profits. But longer term our society will be always be better off if a larger percentage of our population can be educated, and financially stable enough for invention and improve productivity through technological innovation. The more people who can have an idea and join the capital class, the more efficient our economy will be. A middle class is exactly what provides this. Long term economic productivity is dependent on a middle class. Look back throughout human history, times of huge social and technological innovation almost always follow a sudden increase in free time for the average person (ie time beyond the work needed for survival).

jedberg 9y ago

The landlords one makes the most sense. Land is not elastic. It is a limited resource, and so it doesn't follow supply and demand. The supply in a city never changes, only the demand does. And building up isn't necessarily a solution -- it's exponentially more expensive to go up, because you start needing things like elevators and full time building engineers and so on. So going up only keeps things the same, as the price per square foot of going up is higher, only elevating the cost of that land. Building out also isn't a solution, because people want to be close to the city center or the things they go to the most. Self-driving cars may help with this issue in the long term, but not the short term. This blog post[0] summarizes some of the issues. [0] http://meetingthetwain.blogspot.com/2017/01/live-work-commute-2.html http://meetingthetwain.blogspot.com/2017/01/live-work-commut...

loeg 9y ago
> Building out also isn't a solution, because people want to be close to the city center or the things they go to the most. Self-driving cars may help with this issue in the long term, but not the short term. Self-driving cars won't help in the long term either, for the same reason traffic is terrible in sprawling cities like LA today. Fast, high-density regional transit is needed and even that is only a better constant factor. The N^2 or whatever scaling problem remains.
hyperpape 9y ago
Here are condos renting for $2-3k per month in downtown Raleigh on the 20th-30th floors of a relatively new development (http://www.theplazacoa.com/homesforsale.php http://www.theplazacoa.com/homesforsale.php). Now, that seems astronomically expensive for 1000 sq feet to me, being from the South, but it's cheaper than SF rents from what I hear. And plenty of buildings in Queens, Brooklyn or any US city are shorter than 100 feet. There's tons of room for more building. Building costs are not a complete explanation for the current astronomical prices. Political choices to restrict construction play a huge role.
- bufordsharkley 9y ago
  We enact zoning laws with consideration to what we're being taxed to live and work in a high-demand, low-density environment. If a tax on holding onto unimproved land is nearly zero, we're very likely to implement zoning laws banning development, because citizens have little reason to change things. But if the holding cost increases, (say with a significant Land Value Tax) folks now have a reason to legalize development. ...Californians should consider the role of Prop 13 in its current housing crisis.

chrismealy 9y ago

1) Unions were crushed. 2) Fed induces a recession whenever wages grow (that's what inflation targeting literally means). If you read about the power labor had between WW2 and the 1970s it's so alien, it's like science fiction.

cm2187 9y ago
Technology and the economic emergence of formerly third world countries has done more against labor in the US than the fed and the lack of unions.
- chrismealy 9y ago
  The plutocrats who spent forty years trying to crush the labor movement didn't think so. Foreign workers didn't cause the Volcker shock.
bjourne 9y ago
In a way that only moves the question. How were unions crushed? Why haven't they been able to recover?

CriticalSection 9y ago

It's not much of a mystery to crack. The chart starts in 1950 with 63.6%. In that year, one out of three American workers in the private sector were in a union. Today one out of fifteen American workers in the private sector are in a union. In the rust belt, the Wisconsin government has been waging a war against its unions, as it and other states become so-called right to work states. Insofar as this "increas[ing] the risk of social instability", one reason for this is that more and more money is flowing to capital which doesn't even know where to invest it. The main reason so much capital is idle is due to existing overproduction (which you could also call underconsumption, it's the same thing). Workers/consumers are short-changed, so can buy less, whereas more money goes to capital, to build more products - for people who can't afford them. You can see what the main problem is. Consumer debt can solve this temporarily, but if the cut of the pie stays the same, it just postpones the crisis and makes it worse. Things are fairly simple - there is an aristocracy of heirs who own rights to expropriate surplus labor time (which they call profits) from those of us who work and create all wealth. They are very well organized in industry, government, and media. They don't want the people who do the work and create the wealth, us (most of us), to be organized and as aware as they are. They say unions breed laziness, but these heirs have never worked a day in their life.

devoply 9y ago
Not only that, but those people as you noticed don't even know what to do with the wealth. The best thing to do would be for the government to come in expropriate that wealth, and give it out as universal income to stimulate consumption. And then for the labor to unionize again so they can keep a fair share of that wealth. To keep the engine of the economy running... as right now it's stalling under their supposedly "efficient care". At the end does such a class even need to exist, I don't really think so. The world would shed a little tear if these sorts of people disappeared tomorrow.
- branchless 9y ago
  Nope, hand out $1000 BI a month and rent will go up by that amount, leaving the very poor even worse off. Why take from the rich to give to the poor when the way they get their money is flawed (in the main). Address the root cause: fiat issuance against land. edit: I cannot reply to you as yet again the faux HN "you're a georgist submitting too fast" has come out so here is my reply: Not that many jobs are going to disappear overnight in a step change. BI alone is totally flawed as a concept because it utterly fails to comprehend credit issuance against land as the driver of "money" creation and the effect that has on rents.

AndrewKemendo 9y ago

This debate unfortunately lends itself to the Fallacy of the Single Cause [1]. I think this article goes a long way to implicitly argue for a multi-cause reason for the problem of uneven GDP distribution. The global economy is a complex dynamic system, and doesn't lend itself to accurate modeling. So finding cause and effect is an impossible game - especially a single one. [1] https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause

VikingCoder 9y ago

We discovered that we were more efficient if we divided labor. There was a short supply of people able to do some labor, but demand was high, so wages were high. We've succeeded at that so wildly, and automated so much of our lives, that we have bountiful free time to train to be successful in modern jobs. ...while there is some specialization in modern jobs, there's a lot of jobs that are NOT THAT SPECIAL. So the pool of people who would be capable of doing them with no or a small amount of training is HUGE. So wages are low. There's no magic here, folks. Meanwhile, Capital has chased not just profits, but OWNERSHIP of profit-generating entities. Rents, right? And they've been wildly successful at it.

danieltillett 9y ago

I argue the reason is the threat of exapropriation has been lifted. I think we forget in the 21st C. how scary the Russian revolution and the Great Depression were to the owners of capital. They saw that if they didn't give labor a greater share of production they could be strung up. Their solution was to buy off labor with democratic socialism, and then once the threat of exapropriation had past (1970s), claw back the capital. They neutralised the threat of labor ever being a threat again by identifying the potential leaders and co-opting them into the upper-middle classes via universal education and scholarships for the very talented - they wanted to make sure there was no risk of another Lenin arising. All in all it has been a brilliant play, but we should not forget the rich have been advised by the best and brightest for sometime now.

bufordsharkley 9y ago
There's a great amount of truth to this; anyway, it's essentially what Michael Kalecki argued in 1943 in his "Political Aspects of Full Employment". Anyway, I find it unfortunate that the most frightening reform in the face of the rentier class is Marxism-Leninism, a system that simply doesn't work. It honestly seems strange that the radical proposals of Henry George (and his Land Value Tax[1] that would confiscate all rents) aren't used anymore to challenge this class. Last time Georgism infused economic reform, we had the age of trust-busting and worker protections. I hope I'm not dreaming when I think this could return. [0] http://delong.typepad.com/kalecki43.pdf http://delong.typepad.com/kalecki43.pdf [1] https://en.wikipedia.org/wiki/Land_value_tax https://en.wikipedia.org/wiki/Land_value_tax
- danieltillett 9y ago
  Marxism-Leninism might not work as a mechanism for efficient production, but it is mighty effective in exapropriating the rich. One thing I have thought about recently is that with better ML if it would be possible today to model the economy well enough to now make Marxism work in practice. The soviets tried in the 1960s using linear algebra, but their models were not practicable. At some point it should be possible to model the economy well enough that capitalism is no longer the only viable alternative.

dalbasal 9y ago

I think that the honest answer is currently we don't know for sure. Pickety's argument amounts to (IMO) that this is the mature state of our current system. Capital generally grows faster than labour and (if it isn't spent), accumulates over time. I think he also implies that it's brought on (or exasperated by) prolonged peace. One of many ideas... "Capital" is defined (often explicitly) primarily by it's income generating potential. The iconic economist's definition of capital is factories, but most capital today is almost entirely abstract. Companies are some IP, but mostly it's just people. Contracts with people, cultures of people.. Banks are neither. Banks are mostly capital and contracts relating to capital. What does destruction of capital even mean today? I Krugman's point is tautological. If capital s big relative to labour in a company, that company is by definition labour intensive. "Capital" in modern times just means the amount of income that capital generates. Thinking in terms of factories is (IMO) just wrong if the economy isn't mostly factories. In any case, I don't think we know what's going on with any useful degree of certainty.

bufordsharkley 9y ago
> Pickety's argument amounts to (IMO) that this is the mature state of our current system. Capital generally grows faster than labour and (if it isn't spent), accumulates over time. From the article: > Then there’s the idea that landowners, not corporate overlords, are taking money away from workers. While analyzing the work of French economist Thomas Piketty, Matt Rognlie found that national income accounts showed an increasing amount flowing to owners of land. It's worth noting that in Rognlie's analysis, once we take away the effects of land, the return to capital ceases to outpace production. Anyway, as far as explaining the non-productive forms of capital we have so much of today―I'd simply conclude that they're not capital at all... Henry George's definition of capital, for instance, excludes them―he made a (IMO very neat) distinction between "Value from Production" and "Value from Obligation"[0] that is a very useful way for considering things. In time, things like "GDP" cease to seem very accurate or meaningful. [0] http://schalkenbach.org/henry-george/science-of-political-economy/spe214.html http://schalkenbach.org/henry-george/science-of-political-ec...

red_hairing 9y ago

no comments here about diversity and immigration increasing just as labor's share of GDP decreased?

tptacek 9y ago
If you read the site guidelines and follow Dan and Scott's comments (you can do that by plugging "author:dang" into the search bar below), you'll find that we're generally not enthusiastic about people injecting partisan political arguments into threads.
norea-armozel 9y ago
It doesn't account for the majority of wages since the wage dampening done by immigration is oddly done by legal immigration (H1b). The regular manufacturing or service industry job is more affected by outsourcing than immigration.

kristianp 9y ago

Apple is an interesting example of large company that is extremely labor efficient. I imagine Exxon would be another one. With productivity falling in the last 10 years [1], companies that are labor intensive can't grow as quickly those that can grow faster by automating their production. https://www.bls.gov/lpc/prodybar.htm https://www.bls.gov/lpc/prodybar.htm

foxyv 9y ago

The problem is that money is being redistributed from the middle class to the wealthy by mechanisms of our financial system. High taxes on labor both reduce wages and cut spending power of working Americans. Then, the money that is removed from the economy by income taxes is then re-created by the federal reserve system and lent out to banks at extremely low interest rates. This money is then lent as consumer credit which redirects wealth to those who own capital in the form of interest. Essentially Americans are forced to borrow their own money to survive until they can no longer borrow and go bankrupt. The solution is easily executed and within the power of congress or even the president. Reduce taxes to create a deficit then offset it with higher interest rates on corporate credit. Then nationalize the dividends paid out by the Fed to other banks to offset the deficit even more and start charging banks for services they receive through the Fed. Right now we essentially have a giant welfare system for banks in America that is slowly turning non-capital owning Americans into paupers through constant inflation and wage stagnation.