Wage-Productivity Gap

Discussion in 'Politics' started by unlawflcombatnt, Dec 4, 2005.

  1. unlawflcombatnt
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    unlawflcombatnt Guest

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    The WAGE--PRODUCTIVITY GAP

    The most damaging factor to our economy today is the Wage-Productivity gap. This refers to the increase in the hourly output of workers vs. the increase in hourly pay. This concept is described quite well in Chapter 6 of economist Ravi Batra's book, "Greenspan's Fraud."

    During times of true economic prosperity, wages have kept pace with productivity increases. Workers have shared in the benefits of their increased productivity. The result is that wages remained sufficient to purchase our nation's industrial output. Borrowing, or debt-financed consumer spending, was unnecessary to maintain sufficient consumer spending to purchase our production. More production can be purchased because more wages are paid. Demand, created by wages, matches supply, which is created by productivity. This creates a balance that makes massive borrowing unnecessary. And such balance maximizes economic "growth."

    This balance has not been maintained, however, during recent years. It has worsened greatly under the Bush administration. Productivity has increased significantly during the Bush years. In contrast, wages have actually decreased. This trend started before Bush took office, but I'll confine the time frame to December 2001 through March of 2005. These are years for which records are readily available from the U.S. Bureau of Labor Statistics. Below is a graph from the New York Times showing how productivity is outpacing wages.

    [​IMG]

    Starting in January of 2003, productivity (or output per hour) has increased 11.2% thru the 1st quarter of 2005. In contrast, hourly wages have declined 2.3% over the same time period, from an inflation-adjusted $8.32/hour in January, 2003, to $8.13/hour in June, 2005. Production has exceeded the ability of wage earners to purchase the production by 13.5%. This gap has been filled by consumer borrowing. The amount borrowed must steadily increase, in order to keep pace with our increasing industrial production. If it did not, our economy would sink into recession. However, maintaining demand through borrowing is not a sustainable path.

    (Statistics on U.S. Productivity can be found at:
    http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=PRS85006092 )

    Sometimes the effect of the wage-productivity gap can be seen better from a distance. An example of the effect of the wage-productivity gap can be seen with Japan's economy. Again, this was described by economist Ravi Batra in Chapter 6 of his book, "Greenspan's Fraud." Dr. Batra makes a very compelling case that Japan's economic problems resulted from the increasing gap between Japanese wages and productivity. I will paraphrase his explanation here.

    Japan experienced extremely rapid growth between 1960 and 1975. During that time there was a 168% increase in per capita GDP. Their per capita GDP increased from $2,139 in 1960 to $5,750 in 1975. Real wages increased 217% during that time. Manufacturing productivity increased 264% during these 15 years. Japan prospered and its economy grew during this period because wages, which create demand, kept up with productivity, which creates supply. There was sufficient WAGE-FINANCED demand to stimulate production. And the necessary demand was maintained by consumer income, not consumer borrowing.

    After 1975, productivity growth began to outpace wage growth. The result was a much slower growth in GDP. Between 1975 and 1990, productivity increased 3% more than wages per year. During that period, wages increased 27%, while productivity increased 86%. The per capita GDP increase was 64% from 1975 to 1990. Less of the wealth produced by Japanese workers was being shared with them. As a result, business profits soared, increasing money available for investment. This caused Japanese investors to over-invest in both the stock market and housing. Japanese stock markets and real estate values soared as a result of this over-investment. Meanwhile, there was insufficient wage-financed demand to keep up with this capital investment.This necessitated increased levels of borrowing to maintain the demand that wages could not maintain.

    By 1990 there was a huge Japanese stock market bubble and real estate bubble. And in 1990 this overvaluation all came crashing down. The Japanese economy has still not recovered 15 years later. By 2003, the Japanese stock market was still 80% below its peak in 1990. From 1990 thru 2002, per capita GDP increased 13%. Compare that with the 168% increase between 1960 and 1975. Compare this latter 15-year increase with the 59% increase during the 27 years from 1975 to 2002. Japan's per capita GDP increased 3 times as much during the 15 years prior to 1975, than it did during the 27 years after 1975. The pre-1975 rate of increase was 5 times faster than the post-1975 increase.

    What caused this slowdown? The rise in the wage-productivity gap. Worker income that could have been put to good use buying Japanese goods was siphoned off as corporate profits. Since the benefits of investment capital are limited by consumer demand, the result was over-investment of Japanese stock and housing markets, and maintenance of consumer demand by borrowing.

    Does this situation describe any other economy you can think of?


    _________________
    The economy needs balance between the "means of production" & "means of consumption."
     
  2. BaronVonBigmeat
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    BaronVonBigmeat Senior Member

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    Ahh, there's the key term. If output-per-worker has gone up, then the standard of living should have gone up, because of falling prices. More goods saturating the market means lower prices.

    Unless of course you have a federal reserve that's been expanding the money supply, and the workers get their would-be gains stolen by the stealth flat tax of inflation. Actually it's not even really a flat tax, it falls disproportionately on people who try and save, while providing cheap credit which (predictably) fuels dot-com booms and real estate booms. Wealth is transferred from those who work and save, to the government, debtors, and speculators.
     
  3. Hobbit
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    Hobbit Senior Member

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    Yet another good argument for the Fair Tax. I HATE f-ing income tax.
     
  4. BaronVonBigmeat
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    BaronVonBigmeat Senior Member

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    But the fair tax would be visible. Which means when they raise it to pay for welfare or warfare or whatever, people will raise hell.

    Printing money, on the other hand, is nice and stealthy. You won't find one person out of a thousand who understands that the fed pays for government spending by printing money and thus driving inflation. People see that wages aren't going up fast enough, and blame greedy corporations...when they should probably be asking why prices aren't falling. Then when real wages become stagnant, it gives politicians a great opportunity to rail against corporations and gain votes, even though it's their fed that caused it. This is why neither democrat nor republican will speak out against the Fed, except for the wonderful exception of Ron Paul.

    Besides, if we returned to a federal government that was even vaguely constitutional in size and scope, there would be no need for ANY income tax. Abolish the income tax and replace it with nothing.
     
  5. Hobbit
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    Hobbit Senior Member

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    I prefer to start small. First, abolish the income tax. Then, when everybody actually sees how much they're paying for this rediculously large government, we'll work on government spending. I mean, getting rid of the income tax is a big enough project without trying to shrink the government in the process.
     

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