We have been through this so many times before, you and I.
Allow me to jump ahead based on our previous discussions.
Let's investigate your reasoning, as I remember it.
- Fact: We split the gains from productivity 50-50, increased wages-profits, before 1980.
- Loren: Presumably because of market forces at the time, correct?
- Loren: Not because of the economic policies of the time, correct?
- Fact: Starting in 1980 we slowly, intentionally changed our economic policies to supress wages to increase the amount of money available to invest.
- Fact: This is known as supply side economics.
- Loren: But changing these policies didn't impact the income distribution which in your world is determined by market forces, correct?
- Fact: Since 1980 the split between wages and profits of the productivity gains has slowly turned to 100% profits, 0% to wages.
- Loren: This is solely due to market forces and not to the economic policy changes known collectively as supply side economics, correct?
- Loren: So what you are saying is that the supply side economic policies were failures, correct?
If the supply side economic policies weren't the cause of the change in the split between rewarding wages or profits, then there are only two questions left.
I think your wages versus profits approach is deeply flawed.
Ordinary folk take advantage of productivity gains even without wage increase. After all, all these products are consumed by ordinary people for for the most part.
Wages are not useful metric especially when comparing very different eras and 70-80s was a very different era. As for profits then it all depends how do you define them. Modern manufacturing and even business in general has very different cost structure from the older days, capital requirements per worker are much higher, thanks to the damn automation аnd division of labor. So the fact that a lot of money are stuck in the form of capital should not indicate something bad.
No one decided to reduce the gains from increasing productivity going to wages and to give that money to profits. They did decide to suppress the future increases in wages to give this money to profits and to the wealthy. They were very successful at doing this and of convincing enough people to vote for them against their own best interests to enable them to accomplish this. It had the effect as if they had stopped increasing wages by 50% of the annual gains from productivity. It is a way to gage how much money that they achieved in suppressed real wages by constantly limiting the increases to about or less than the inflation rate.
People have no idea how to see if they are getting the wage increases that people in the same positions got in the past. When people are promoted most companies reduce the salary that is paid to the newly promoted person to less than the previous person received. The newly promoted individual doesn't know that he is getting less money than the person in that position before them was earning. Then the company can give the new person raises to keep them happy at the same time that they are enjoying a reduced wage bill.
It is the same mechanism that worked for the supply siders. No one realized that they were being paid relatively less than the people before them. It is only by looking at the labor share, wages, and the capital share, profits, both as a portion of GDP, that we can see definitively how successful the supply siders were in rolling back the wages paid to the entire workforce. The labor share dropped by 7% of GDP and the capital share rose by 7% of GDP over the 35 years. This is about 1.2 trillion dollars less wages paid to the workers in a year and the same amount paid more in profits.
Lowering wages increases profits. Increases wages lowers profits. These were always true. These will always be true.
Like everything in economics, the details include how much and how fast which vary considerably with the conditions in the economy.
Wages are a factor of production. Profits are not a factor of production in spite of a hundred years of economists trying to make it one. A business can operate indefinitely without profits, they can't operate for long without the factors of production.
Profits are what is left over from sales after all of the bills are paid. If the cost of labor for each product goes down it increases profits. If the manhours per product goes down for whatever reason we call that an increase in productivity, which increase profits.
The point is that none of these lowers the price. They have the potentional of lowering the price, but since lowering the price lowers the profit it is quite far down the CEO's todo list. Prices like wages are sticky, they resist going down.
You are going to have to talk harder and in more detail to convince me that profits and wages in terms of GDP from year to year or even era to era aren't useful metrics. The measurement of GDP is constant across time. The definition of wages and profits are the same. The definition of business investment is the same.
I have restricted myself to type C corporations, avoiding the morass of type S corporations and small businesses, the vast majority of which are actually the wages of doctors, lawyers, accountants, dentists, engineers, etc. taking advantage of ever changing tax laws to lower their taxes. The profits of these corporations are actually wages.
I assume that when you talk about ordinary folks taking advantage of increased productivity without wage increases you are referring to reduced prices for consumer goods. Correct me if I am wrong. But it won't surprise you that I will forge ahead based on this assumption.
You are correct, increased productivity has resulted in lower relative prices and in some cases even in lower nominal prices, TVs for example. It has resulted in better quality and usefulness of the products that we buy. But all of these things are taken into account by the GDP measurement. GDP is the total spent for all goods and services bought inside the borders of the US in year, by consumers, businesses, government and net foreign trade. It doesn't include spending for transfer payments and assets counted in previous years GDP. If productivity and innovation lowers the prices of products it lowers the GDP. If higher quality products are more durable it is reflected in the GDP. If the utility of the products are improved and they ellipse other products it is reflected in the GDP.
This is a little disjointed. I wrote it while watching football. The order of the paragraphs is somehow wrong and I feel like there was more that I wanted to say that I can't remember what right now. I have been watching football since 6:30 this morning, (soccer from England) to right now and there is still a game to go.
