Home > Uncategorized > Wages not commensurate with labor productivity in the USA

Wages not commensurate with labor productivity in the USA

labour-productivity-since-1979

Since 1975 workers have received almost none of the gains of increased productivity, which has increased by 143% since around 1975 (figure 14). In other words, productivity has more than doubled, while workers received none of the gains. This can be explained by the deindustrialization of the US economy, as heavy industries followed by manufacturing in general were exported to Asia. Due to this trend there was a huge decrease in unionization which went from 39% in 1940 to around 10% in 2014. During the same period there was a trend toward part-time work and contract labor, mergers and acquisitions, with downsizing and layoffs. The Reagan revolution and Republican “Contract with America” both served to remove power from the working class and transfer it to corporations. One of Reagan’s first acts as President was to break the Pilots and Air Traffic Controllers strike (PATCO), replacing them all with military personnel. That was the final nail in the union coffin. The Democratic Party in 1992 through the Democratic Leadership Conference chose to seek the same corporate and Wall St. money as the Republicans, and from that point on effectively stopped serving the working class. All these factors led to the reduction of bargaining power and political power on the part of labor, and can help explain the stagnating real wages during this period of time.

Gary Flomenhoft
Escaping the Polanyi matrix: the impact of fictitious commodities: money, land, and labor on consumer welfare 

  1. shivz
    November 1, 2016 at 10:45 am

    “Since 1975… productivity has more than doubled, while workers received none of the gains.”

    I am not trying to be provocative, but… should they?!

    If it is true that most of the productivity gain since the eighties was due to the game-changing computerization and robotization in the manufacturing industries, then the benefits thereof should have been shared by the whole household sector, not specifically the workers in the respective corporations.

    But that hardly happened. What did happen was that profits (and compensation to top management) as a share of the firms’ turnover consistently went up. Look at the eye opening graph and ask yourself what happened in between the two lines.
    I call it windfall profits, but this is only part of the story, or the end result of a story much bigger than just windfall profits.

    however, instead of asking or complaining why ‘workers received non of the gains’, ask the following questions:
    (a) given that technological progress is the achievement of the whole system (education and civil culture, to name but two attributes), why should the owners of capital and/or the respective workers be the sole or main beneficiaries of the productivity gains.
    (b) how culd this be rectified without rocking the entreprenuerial foundation of the economy, as well as by encouraging workers motivation, and finally –
    (c) how to express montarily, i.e., in terms of household income, the productivity gains in an unfolding reality of production with less and less workers.

    • November 1, 2016 at 5:55 pm

      A splendid reaction, Shiv. I asked myself similar questions – and answered them – long ago, to the effect

      (a) Owners and workers shouldn’t be the only beneficiaries. What about housewives and carers, children, old folk, the ailing and those whose work projects are still in their infancy?

      (b) With only credit card type finance for both personal and work project needs, repaid by doing what the credit is needed for, so where the work and/or distribution hasn’t been done , credit limits can reflect repayment history (i.e. penalising free riding and rewarding good work). With all work and goods paid for on credit, there is no need for monetary taxes, interest, rents, profits, savings, pensions, insurance and legacies; investment does not have to earn its keep, but patents and copyrights, leadership and achievement in all fields can be recognised with honorary awards like deluxe housing which, if entrepreneurs already have, they can maintain on credit until they die (though they can’t take it with them, while money they have acquired and not returned counts against them as debt). The credit system (“honest money”) apart, John Ruskin proposed something like this in the 1860’s, cf. “Unto This Last” and “The Crown of Wild Olive”. The point of it is for mankind to spend and replenish what it needs, not mass production spending all that Earth has to give. The “given” at (a) may be achievable by largely automated mass production and distribution of pre-processed materials and craft tools providing for human learning and satisfaction in local production, maintenance, environmental and development, encouraging competitive development, but wider production of only environmentally safe procedures and products.

      (c) In a credit economy, physical productivity gains would show up as reduction in average household/project indebtedness, and human quality gains in increasing credit limits.

  2. David Chester
    November 1, 2016 at 11:29 am

    Shivz–your questions are most pertinent and were answered by Henry George in 1879 in his seminal book “Progress and Poverty”! He asked: why is a world of great technical progress do there continue to exist a proportion of our society who are poor and living in poverty?

    The answer George gave, which is relevant today, is that our society does not provide an equal opportunity for access to the means of production, namely the land. This is one of the 3 basic factors of production of Adam Smith in his 1767 book “Wealth of Nations” (the other 2 being labor and durable capital). Smith and George were both aware that the control of the land access rights is the means for its monopolization and mis- or dis- use. There is great speculation in land values today as then, which causes some of the sites to be held unused and the rest to have inflated high costs associated with their availability or sale. This has the effect of limiting the free availability for work opportunities, it make production costs unreasonably high, unemployment and the resulting demand for produce too small. This then has the dual effect of less wages being circulated and the relatively high resulting prices of the goods being a serious limitation for consumption.

    George also suggested a solution to this problem, which was to introduce a single “tax” on land values and to scrap every other kind of tax. He showed that taxpayers money is regularly taken for town and country infrastructural improvements, which in turn raise the productivity of the land and its value. Hence the advantage in a personal policy of speculation in land values. Actually what George called a tax is not strictly one, because a tax holds back production and progress, whilst collecting the money due to the rent from the land laying idle and in use, encourages more land to be put into use, which is helpful to reduce competition for land access, to encourage progress and is not like any other tax.
    TAX LAND NOT PEOPLE–TAX TAKINGS NOT MAKINGS!

    • shivz
      November 1, 2016 at 3:48 pm

      I dont think that my question (a) has anything to do with Land or Henry George.

      • November 1, 2016 at 4:18 pm

        I don’t think so either. Your point b is quite a good question because it wonders how to design and move into a future that none can see from a present provocative that points to the entire household sector. May I assume the household sector includes economic goods that reside with the entire culture and possibly benefits from a restored healthy environment?

        My impression is actual entrepreneurs would do fine in a zero subsidy and balanced budget political economy.

      • November 2, 2016 at 10:38 am

        Actually, Shiv, I think it does; and David Chester has articulated Henry George’s answer very well. Your question was “Why?” and the answer to that is “Because”. Historically, the start of capitalism was people being driven of their land to make way for monetarily profitable mass production of sheep, and collecting rent for land lying idle or underused is akin to Gesell’s charging for holding money or mine for accounting for money as having negative value.

    • Grayce
      November 17, 2016 at 12:11 am

      There might also be a strange change in the way productivity is calculated. Output / input has to occur in the same time frame, or the result is skewed. Someone who can create an ever lowering labor input (top) will win a bonus without increasing profit (bottom). Downsizing the workforce is a novel way to change the calculation’s factors. But, to divide a year’s output by the last day’s workforce is not unheard of. Many people say that their co-wrorker was not replaced and they are running ragged.
      So, first you have to ask if the top curve is correct, or was it a bit of new math to show a gain? Second, you have to measure work.

  3. November 1, 2016 at 12:58 pm

    The centrally planned Soviet Union collapsed when central planning for state capitalism running state corporations squeezed all it could from the population with economically malignant austerity techniques.

    Back room centrally planned United States corporatism is following a similar austerity path as the old Soviet Union, as this graph clearly shows. The main difference between the situation faced by the US today and the USSR of the 1980’s is that central planners guiding the US economy are facing environmental collapse at the same time that eternal war absorbs more and more of the economy for destruction and mayhem rather than positive social growth and a stronger nation.

  4. Adolf Stepan
    November 1, 2016 at 3:21 pm

    We know this at least since the empirical study on Baumols diseases for the USA: Nordhaus, W. D. (2008): Baumol’s diseases: a macroeconomic perspective, The B.E. Journal
    of Macroeconomics 8(1) (Contributions), Article 9.

  5. antireifier
    November 1, 2016 at 3:58 pm

    Just curious about the graph depicting the relationship between wages and productivity. Productivity is measured by looking at a comparison of inputs and outputs. Are wages and workers’ benefits not inputs? If so, would holding them steady or causing them to decline not make it look like productivity is going up more than it really is? Would government programmes taking over private sector benefits such as health care and pensions not also artificially increase productivity depictions such a this graph?

  6. November 1, 2016 at 6:10 pm

    ““A FAIR SHARE FOR ALL” “Money now is a license to live.”
    “It’s time to rewrite the rules―to curb the runaway flow of wealth to the top one percent, to restore security and opportunity for the middle class, and to foster stronger growth rooted in broadly shared prosperity.”( Economic Nobel Laureate Joseph Stiglitz)
    Yes, OCCUPY, the “Trickle Down” system doesn’t work.
    Yes, Bernie Sanders, the “Trickle Down” system doesn’t work.
    Yes, Pope Francis, the “Trickle Down” system doesn’t work.
    It doesn’t work because the establishment impedes the flow.
    READ: It doesn’t work because the establishment impedes the flow.
    REPEAT: It doesn’t work because the establishment impedes the flow.
    This must change.
    We must remove these impediments and create a flow of wealth directly to the “PEOPLE”.
    The system is meant to “reward all”, to allow all “Their Fair Share”.
    Millions now realize;… the economy is rigged, …the justice system is rigged, …the health care system is rigged, …the employment system is rigged.
    They are all part of an economic system that is really just a rigged political system.”
    SOLUTION.
    “Democratic Republic Capitalism”
    Capitalism is the “best” system to date devised by mankind. When capitalism uses its administration properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be one of the “greatest” achievement of mankind.
    “Inequality and Poverty Reduction Adjustment Program”
    “Increase……. Wages, Jobs, the Standard of Living
    Decrease…… Federal Debt, Poverty, Inequality Gaps.”

    A NEW ONE PAGE FORM.
    Federal Personal Income Tax: 2016
    Taxation is a ways and means by which a Monetary Sovereignty recaptures currency already in circulation.
    Currency that it can redistribute without changing the quality or quantity of the entire currency.
    Capitalism demands inequality.
    Capitalism demands proportional rewards.
    The size of the ‘Gaps’ are a demand of the administration of the quality and quantity of these ‘gaps’.
    It is the size of the gaps where the administration of inequality becomes distorted.
    American Capitalism (Republican Democratic Capitalism) allows everyone to achieve
    ‘The American Dream’ and to retain that “Fair Share”.
    But that dream should not impede the poor and elderly from achieving their FAIR SHARE. Nor should it impede risk and reward which will ultimately lead to a betterment for all.
    A federal taxation of personal income must recognize the sanctity of “The fruits of mankind’s labor”
    A federal taxation of personal income should be used to control the distribution of income to obtain a fair and just sharing of the American Dream.
    A federal taxation of personal income, a just and fair sharing of the worlds riches while maintaining the greatest standard of living.
    A federal taxation of personal income is not a required source for government spending. Taxation for spending can be acquired (As this system already knows) by “other means” than personal income taxation.There are many better ways to INCREASE REVENUE for government spending.
    You will hear that this plan will increase the standard of living, will increase jobs, but there could, maybe,perhaps, be a loss of revenue versus the present income revenue stream produced by confiscation of your “Fruit of your LABOR.”
    BUT that does not matter, because there are too many ways to tax, all of which are better.
    The BEST Plan to raise revenue is to create millions of new American Jobs.
    “Money now is a license to live.” (Frederick Soddy 1932) and we must preserve that American Dream that allows
    for the basic dignity of mankind; a good standard of living, life, liberty and the pursuit of happiness.

    “THE NEW ONE PAGE:
    Federal Personal Income Tax Form : 2016.

    Brackets & Rates for Married-Joint filers:
    Less than $100,000: 12%
    More than $100,000 but less than $225,000: 25%
    More than $225,000: 33%
    *Brackets for single filers are ½ of these amounts
    ALL income is taxable and must be reported
    Tax Group One (12%)
    Income up to $50,000 will be taxed at a rate of…..12%
    JOINT Income up to $100,000 taxed at a rate of…12%
    Tax Group Two (25%)
    Income from $50,001 to $150,000 will be taxed at a rate of …..25%
    JOINT Income up to $100,001 to $150,000 will be taxed at a rate of …..25%
    Tax Group Three (33%)
    Income from $150,001 to$500,000 will be taxed at a rate of ..33%

    NO exemptions. NO loopholes.Period.

    Deductions
    The Trump Plan will increase the standard deduction for joint filers to $50,000, from $12,600, and the standard deduction for single filers will be $25,000.
    Tax must be paid, any claim of injustice may be filed for a proportional refund which would become a tax credit if approved.
    ***The Tax Group One (12%) will receive a 6% distribution to replace their loss caused by sales taxes which are a detriment to their ‘standard of living’. This 6% will also replace any Social Security loss.The rebate will help grow our economy as well as allow wage earners to keep their share of the American Dream and raise the standard of living.
    ***The Tax Group One (12%) , and Tax Group Two (25%) will receive a 15% ‘take home’ pay increase.
    This is at ZERO cost to production (The minimum wage concept would cost jobs as well as increase production cost). There will be no FICA payment taken out of their pay.
    This merely places what was earned in their paycheck; it is the 15% F.I.C.A. that was withheld from them; now going directly into their take home pay.
    ***The Tax Group One (12%) , and Tax Group Two (25%) will receive a direct tax credit as provided for ‘Child and Home Care’. Tax credits that become ‘overages’ will become an immediate cash refund.
    ***The Tax Group One (12%) , and Tax Group Two (25%) will receive a direct tax credit of $2,000 for each child under the age of 18 for HEALTH AND EDUCATIONAL MAINTENANCE.
    This is an increase in wages, an increase in Social Security, a direct increase in income to more than 50% “of the people.” and it will be done “with a reduction in National Debt”.
    ( https://bestsolutionsfl.wordpress.com/2016/10/31/trumps-proposals-4-all-americans-2-receive-their-fair-share-of-the-american-dream/ )

  7. November 1, 2016 at 6:30 pm

    Davetaylor1, why not have a Central Bank that serves “the People” by providing loans to it’s Public State Banks. Borrowing interest free from the Entirety and charging a tax (interest) on the loans. A Central Bank no longer being used to maximize profits for the private banks, rather being used for the betterment of all thee people. The U.S. must mandate that the Executive branch and the Legislative branch, Reverse..“… an economic recovery program that has privileged the recovery of financial markets and corporate profits has fueled the increase in wealth inequality, in the United States and across the world.”
    Reverse that program, make the money FLOW to “…help form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”

  8. November 2, 2016 at 9:23 am

    Carmen, I’m sad to see the interest has moved on to refugees from the wars being stirred up by cosmopolitan capitalists, whose ill-gotten monetary gains allow them (under your real rather than written Constitution) to employ people to automate warring and, in preference to mutually ensured destruction of our world, to destroy other people’s homes and build ever bigger skyscrapers as monuments to their own imbecility.

    As for your responses to me, perhaps you don’t realise that taxes began as giving kings (and still give bought governments) the means to wage wars, ostensibly of defence but too often of offence: as creating opportunities for plunder. Perhaps you don’t realise that central banking began as a way to pension off kings, at a time when the Stuart kings of England were being ousted by wealthy people who didn’t want to pay tax; that now wealthy people have off-shore bank accounts beyond the reach of national constitutions So the answer is not tax. It is to make money-making rather than barn-filling and earth-renewing look ridiculous. As Fred Soddy realised, making fictitious money is in fact ridiculous. The strategy I’m suggesting is the Jujitsu one, of turning the power of money against itself. We, not the banks, make our own money as and when we need it, recognising that it indebts us when we spend it, but like a hitchhiker getting a lift, aspiring not to repay the person who gave us the lift, or to perpetually free-ride, but to join and keep going the community of mutual lift-givers.

    Shiv started this; I do hope he is still reading it.

    • shivz
      November 2, 2016 at 10:53 am

      Davetaylor1, I am reading, but am not sure what, in the above context, i started. Referring however to your remark about money creation and my point c: increased costless production of goods means that producers dont incur income-generating expenditures to match their increasing capacity.

      This warrants household income creation by other sources, i.e., bank credit or government transfers (even though publicly financed projects are preferable), if the whole production-consumption edifice is expected to susrvive, let alone thrive. The problem, though, is that such exogenous funding of purchasing power would automatically generate, as it did in the last decades, windfall profits for the producers – a problem that can be solved by introducing a payroll/turnover corporate tax adjustment.

      Anyway, government funding (with debt-free printed money) is preferable because given the pace of technological progress and automation, building household purchasing power on consumer credit is tantamount to robbery.

      • November 2, 2016 at 5:39 pm

        Shiv, so far as I am concerned you started the wholly commendable business of shifting the agenda from knee-jerk reaction to serious thinking, given questions invite answers.

        On question (c), I have given a macro answer, but your reaction to it suggests you were expecting a micro one.

        Let me explain again that a bank informing us of our credit limit does not indebt us: we actually create debt ourselves when we make purchases on credit. Thus when we buy things on credit credit cards we do honestly what now happens dishonestly, when employers pay us not what we produced but monetary credits; and banks claim to loan us something of value but actually give us their IOU’s. Banks are thus enabled to buy, with such IOUs as governments authorise them to print, the things like houses and productive resources we need to buy, letting us have them on hire purchase until we have paid back the IOUs with which we have received in exchange for goods or as wages for our labour. The problem with this usury (charging for the use of money) is that the IOUs are treated as themselves things of value when in fact, when used they indebt; and though loans are written off when repaid, the notional value of interest far beyond expenditure on purchases (i.e. the widening gap between the graphs we are discussing) is not used to finance future “loans” (which Professor Werner has conclusively demonstrated are created merely by increasing credit limits) but stored uselessly by pushing up the prices of property and share holdings. As this is counter-productive, and by inflating prices inflates future debt, my conclusion has been that the net value of the IOUs is neither positive nor neutral but negative: accounting only for debt and its repayment.

        Thus when you say: “The problem, though, is that such exogenous funding of purchasing power would automatically generate, as it did in the last decades, windfall profits for the producers”, I say the profits will be of negative value, so why would anyone who understood that want them?

        Sure I agree with you that “government funding (with debt-free printed money) is preferable” to what we have, “(even though publicly financed projects are preferable)”. But how would government’s replacing IOU profits with IOU hand-outs shift the focus from increasing consumption to acknowledging and paying off our debts to our society and the natural environment? to alternatives to automated mass production for consumption? to appreciating, maintaining and helping regenerate the wealth of resources we already have?

        I’m envisioning: by mass pre-processing of materials for humanly satisfying local completion as needed, to obtain the satisfactions of skill development and learning by doing via investment in making Schumacher-type intermediate technology so generally available it can afford to stand idle. This is already happening with personal tools and computers, but here in the UK local working facilities and communities are being destroyed or dispersed rather than made ubiquitous.

      • November 2, 2016 at 7:30 pm

        “Sure I agree with you that “government funding (with debt-free printed money) is preferable” to what we have, “(even though publicly financed projects are preferable)”. But how would government’s replacing IOU profits with IOU hand-outs shift the focus from increasing consumption to acknowledging and paying off our debts to our society and the natural environment? to alternatives to automated mass production for consumption? to appreciating, maintaining and helping regenerate the wealth of resources we already have?”

        A SIMPLE SOLUTION- Reverse..“… an economic recovery program that has privileged the recovery of financial markets and corporate profits has fueled the increase in wealth inequality, in the United States and across the world.”
        Reverse that program, make the money FLOW to “…help form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
        It is now proven- Banks create “money’ out of thin air. Private for profit banks as well as the Central Bank. This creation is a different kind of “money” that is ‘the real value of the sovereignty’ that ‘money’ is a receipt of ‘real wealth ‘ being transferred; redeemable at a future date for any equal wealth.
        An Honest Central Bank…
        … must be the sole custodian of the sovereignty ‘real money’.
        … may BORROW (interest free) from the community’s wealth.
        … Only the Central Bank may borrow, and must protect the asset.
        ….The CB must maintain the quality and quantity of the sovereign issuance.
        …. The CB shall LEND and may charge interest as needed “to form a more perfect union.”

        Soddy,”…… every monetary system must at long last conform, if it is to fulfil its proper role
        as the distributive mechanism of society. To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government.”

        There would be ZERO debt.Period.
        No “fatal Flaw”.
        No ‘systemic failure’
        No ‘possible monetary collapse
        We the people would have “profited over $30 TRILLION as Net Interest Income (NII) since the 1930’s.” Instead’ we get another day older and deeper in debt.’
        Challenge: SODDYISM
        Forgive the messenger.

      • November 2, 2016 at 8:22 pm

        We are Soddy’s heirs. Deficit spending and subsidies destroy democracy by going around the people. Voted bond issues engage democracy and discussion among the citizenry.

  9. November 2, 2016 at 4:53 pm

    ” I’m sad to see the interest has moved on to …cosmopolitan capitalists, ” Davetaylor1.
    Please forgive me, my communication skills are perhaps at a “C” grade. I had wished to convey a message, regardless of the messenger. We need to establish: “What is taxation” just as it is necessary to establish “What is money”. Taxation is an appropriation of value taken from the community, then used by the governing body as they deem fit. It is in the administration of what Caesar takes and what Caesar does with it is the issue.
    The present system taxes on the federal level-PERSONAL INCOME.
    There is no need to take that money and use it against the community, or “to impede
    Life, Liberty and the pursuit of happiness.”
    “A federal taxation of personal income must recognize the sanctity of “The fruits of mankind’s labor”
    A federal taxation of personal income should be used to control the distribution of income to obtain a fair and just sharing of the American Dream.
    A federal taxation of personal income, a just and fair sharing of the worlds riches while maintaining the greatest standard of living.”
    THE MESSAGE:
    “Democratic Republic Capitalism”
    Capitalism is the “best” system to date devised by mankind. When capitalism uses its administration properly,that is for the betterment of the common good, with equality and justice for all, capitalism would be one of the “greatest” achievement of mankind.
    “Inequality and Poverty Reduction Adjustment Program”
    “Increase……. Wages, Jobs, the Standard of Living
    Decrease…… Federal Debt, Poverty, Inequality Gaps.”

    BTW, Soddy got it right,’the system is rigged’, “”Genuine and Fictitious Loans.
    For a loan, if it is a genuine loan, does not make a deposit,
    because what the borrower gets the lender gives up, and there is no increase in the quantity of money, but
    only an alteration in the identity of the individual owners of it. But if the lender gives up nothing
    at all what the borrower receives is a new issue of money and the quantity is proportionately
    increased. So elaborately has the real nature of this ridiculous proceeding been surrounded with
    confusion by some of the cleverest and most skilful advocates the world has ever known, that
    it still is something of a mystery to ordinary people, who hold their heads and confess they
    are ” unable to understand finance “. It is not intended that they should.”(The Role Of Money)

    • November 2, 2016 at 8:04 pm

      Carmen, perhaps English is not your native language? I see nothing to forgive in respect of communication skil levelsl; for me the important thing is, you have something to say and are putting up with your difficulties in order to say it. Anyway, I take your point about needing to establish “What is taxation”? For me it is the giving of – or the right to – the resources governments need to do their jobs, the problems of that in Galbraith’s new industrial state being to know who are the local kings and what are their proper jobs. In medieval times the king was seen as “Defender of the Realm” against attack from without and disorder within.

      • November 2, 2016 at 8:36 pm

        “I take your point about needing to establish “What is taxation”? For me it is the giving of – or the right to – the resources governments need to do their jobs…”
        Then surely you must agree, “allowing Private For Profit Banks(PFPB) to issue ‘money’ and to ‘tax’ that issuance by charging interest may be “the Fatal Flaw”, the “Systemic Failure “.
        As Soddy said…” is to create, first, a secret and illicit arm of the government …”
        BTW, both the CB and the PFPB create “new issuance” and no one cares that BOTH issuance’s are TAXED; not for the betterment of all, rather only for the 90%ers.

        As for “the resources governments need to do their jobs…” Yes, but “borrow” it and use that ‘money’ to create an asset, an income stream. Appropriating “The Fruits of one’s labor” is not
        useful, nor is it needed.

  10. November 2, 2016 at 8:45 pm

    Correction: “As for “the resources governments need to do their jobs…” Yes, but “borrow” it and use that ‘money’ to create an asset, an income stream. Appropriating “The Fruits of one’s labor” is not useful, nor is it needed….. AS A RESOURCE.”

    • November 3, 2016 at 9:21 am

      So you are not taking MY point,Carmen, about tax being one way (and my credit card system another) of paying kings and their servants, who are human and need to eat even though their work helps produce well-being rather than anything saleable.

  11. November 3, 2016 at 10:37 am

    Garrett, having looked at your blog I can see why you usually have something pertinent to say, but at “The centrally planned Soviet Union collapsed”, the point in terms of the TV analogy I have used recently is that the fault is in the central planning, which is of the [political] programme content, whereas the need is to design a better [TV] system, as in an electronic rather than Baird’s original half-mechanical system.

    At “We are Soddy’s heirs” you make an important point which hasn’t previously come out in my discussion:- ” Voted bond issues engage democracy and discussion among the citizenry”.
    Precisely. That’s how it is intended to work out in my system concept. But how to explain simply how that works out?

    I’ve developed a model of everything along the lines of the arabic number form, with the most significant changes at the one end and all the activity at the other: the units being like the hours of a clock where, below the level of counting, quarters are established by symmetry and accumulate over time. Apply that to successive layers of government, with currently national governments at the most significant end advising self-government at the other. The most significant decision is what the ecology as it stands can afford, which (simplistically put), divided by the number of people gives logical measures of what individuals can afford and need to do, including helping make good (paying off existing debts to) the ecology. With a proportion of the total set aside for rewarding outstanding contributions and some scaling for self-improvement, the aim is not to exceed the resultant expenditure rate [Citizen’s Income] and (by economising, buying only what is needed) to help at least passively by giving the ecology time to recover.

    The point being, the most significant levels of democratic government are advisory. All the practical “bonding” has to be made by individuals or families (Mum/Dad/Boy/Girl) as responsible householders.

    • November 3, 2016 at 6:29 pm

      DaveTaylor1, I enjoy reading your contributions as well as most everyone who participates on this great and growing website.

      Yes, I agree that central planning itself does have major drawbacks, a subject my adviser, Dr. Jerry Karcz, often brought up, years ago. Soviet plans regularly went awry even when the central planners had the best of intentions. Good Dr. Karcz never lambasted the character of anyone, other than Hitler and Stalin. He was not against planning yet he often brought up humorous aspects of government central planning for his students. One example that sticks with me is how a Russian plan to make more shoes was rationally executed at the factory level, where leather was short; millions of baby shoes. Another was the need for glass expressed in square meters being paper thin glass gently loaded and signed off as received for shipping; most of the glass broke in transit. Centrally planned economies run into problems even when graft and corruption are not the reason.

      Although central government planners today are mostly involved with supporting private corporatism, we are witnessing private enterprise behaving the same as state corporatism practicing rampant destruction of the environment and society. My thesis back in the old days was convergence of economic systems. I was young and even more naive then; thus, I concentrated on things like all cars eventually looking the same because they are designed within the same over arching set of natural laws and must satisfy the same unavoidable accounting principles. I did not begin reading actual ecological economics until the mid 70’s and 80’s.

      You have honed in on my intellectual struggle and I am made happy by that. Your categories of paying off existing debt to the ecology and rewarding outstanding contributions while supporting and defining a society that can afford to buy what is needed for a proper dignified human life are well defined. (I add in ambitions for star travel as fitting with passively waiting for Earth to heal).

      How to explain simply how this works out? I believe a significant portion of economic study should begin at very basic citizen level discussions. This is one reason I describe the US government as originally designed around a balanced budget. The basic design of placing short-term representatives in charge of the national budget makes no design sense at all unless the unspoken assumption is a balanced budget. Frederick Soddy has provided much to us, as have Nicholas Georgescu-Roegen and many others.

      Politicians tell us they are for green jobs and rebuilding infrastructure. They often give highways and bridges as examples. Yet highways for automobiles are destructive to Earth and society. Here is where voting on bond issues for large projects comes into play as exercising democracy in the information-age. Does one really want to expand Heathrow or build a huge 12 lane elevated freeway through Los Angeles? Let’s exercise democracy and discuss proposals and alternatives. Will popular wisdom grow to encompass choosing environmentally responsible projects over oligarchic demands? It’s worth a try because even an old person like me might live long enough to see Earth’s life support systems change in a way that excludes mammals and birds.

      My recurring project to further this effort of focusing distributed intelligence involves developing a voting system for measuring what I call nuanced preferences. I hired a programmer who only worked 16.5 billable hours in 2.5 months and am now advertising for a replacement. A snapshot first step of the screen widgit can be seen here. Web programmer needed, email contact at bottom of page. http://www.autonomousDemocracy.org

      The most significant levels of democratic government will grow from purely advisory to telling the government what to do or we are doomed to living on a Mars like planet. Neoliberal economics was and is obvious mumbo jumbo.

  12. November 3, 2016 at 1:35 pm

    Explaining the real-wage/productivity disconnect
    Comment on Editor on ‘Wages not commensurate with labor productivity in the USA’

    The elementary formula* for the real wage follows from the correct labor market theory.

    The formula* says that the real wage depends on productivity R and inversely on the expenditure ratio rhoE (the letter rho stands for ratio). The other determinants can be ignored for the moment. The formula gets longer when government and foreign trade are included.

    An increase of the expenditure ratio rhoE lowers the real wage and vice versa. An expenditure ratio rhoE greater than 1 indicates credit expansion, a ratio rhoE less than 1 indicates credit contraction.

    The disconnect between real-wage and productivity is explicable to a large extent by the deficit-spending of the household sector and runs in parallel with growing household sector debt. Note, that the formula is composed of measurable variables and is therefore testable.

    Egmont Kakarot-Handtke

    * See Wikimedia https://commons.wikimedia.org/wiki/File:AXEC45.png

  13. shivz
    November 3, 2016 at 2:26 pm

    Davetaylor1, thanks for compliment.

    1. Household credit: this, to my mind, is far from being a ‘micro’ item. The volume of total household debt is a first class macro issue. See the unprecedented surge, of many trillions, during the years before the Great Recession. Could or should it be controlled or prevented by means of public policy?
    But this is a general remark.
    What I am talking about is the necessity of household purchasing power creation by debt-free money-printing in view of the automation effect, i.e., increased capacity, on the one hand, and diminishing income-generating expenditures.

    2. Windfall profits emanate from two independent factors.
    First, increased productivity. Paraphrasing Adam Smith, less and less labourers perform greater and greater quantity of work, as happened in the last decades, particularly in the US manufacturing. But this by itself does not guarantee profits, even if the total volume of wages, as well as wage rates, considerably lagged behind the physical output – again, as actually happened.
    Secondly, household purchasing power. If this power goes down commensurately with the producers’ falling income-generating outlays, no windfall profits can be made. But, bring in bank- or government-money, and the producers’ profit problem can be dramatically change, for then, the costlessly produced physical-surpluses can easily be translated into money-surpluses, i.e., very real and lawfully earned windfall profits.
    Yet, windfall profits are the inevitable and benign result of purchasing power creation by money-printing, but precisely for the sake of preserving the system, the money provided by the government must be recouped through adequate corporate taxation (e.g., by payroll/turnover ratio adjustment, as suggested in my previous post).

    P.S – elaborating the reason for limiting myself here to manufacturing, is well beyond the scope that would be allowed in this format.

  14. November 3, 2016 at 5:50 pm

    Shiv, my response to your question on household credit, “how to express monetarily, i.e., in terms of household income, the productivity gains in an unfolding reality of production with less and less workers”, was “In a credit economy, physical productivity gains would show up as reduction in average household/project indebtedness, and human quality gains in increasing credit limits”.

    In a credit card economy (which in dishonest form, with the banks holding all the cards, we already have), the macro view is that ALL purchases of physical goods are expressed in terms of debt, so total production is reflected in AVERAGE household debt. In a micro view (still yours?), the household income is given but the average is taken for granted. Had you needed to know the total debt you would have calculated it as the sum of the monetary total, not taking account of the fact of monetary value variations and not all real household incomes being recorded.

    Likewise with windfall profits. Remember the gestalt example in which the outline of a sculptured pot suddenly appears as two people facing each other, identical except for being mirror images? Given today’s positive money value assumption, windfall profits look like a good thing (though for whom?). Given money is actually credit which indebts one to one’s society and nature, exactly the same money increases count as debt, not profit. So who’d want to incur them unnecessarily?

    • shivz
      November 4, 2016 at 8:18 am

      Davetaylor1, I will put my queries in the simplest way:
      1. Does the periodically recorded household outstanding debt has, as such, any meaning?
      2. If it does, is it something that public authority (governement of central bank) should pay attention to, and if necessary, act?
      3. Given that producers’ income-generating expenditures are consistently falling (due to automation), should the corporate tax be reformed so that excess profits are properly defined and recouped if household income is supported, say, by government money?

    • November 4, 2016 at 11:52 pm

      Shiv, there is nothing complicated in my saying that, because banks take back more money than they lend, even in monetary terms their net value is negative. In real terms, when natural resources are consumed in manufacturing and use, the increment in real value is negative and needs to be replaced.

      Occam may have said c.1320. “keep it simple”, but Einstein warned c.1920: “not TOO simple”. The minimum simplicity here has the form “give and take money, take and give back the wealth of the earth”. To leave reality out of economics is like throwing the baby out with the bathwater. Money is merely a number, which has the advantages that it can have different units, be applied to units of anything, be stored temporarily in a variable, and manipulated mathematically; but I don’t suppose you think we should be paying banks for the use of numbers, as against collecting penalties from those who mess up the earth.

      To answer your questions, then, as simply as I can (given their ambiguity):

      1. The outstanding debt on my credit card has meaning to me, which I can address. National statistics of outstanding household debt have meaning in the same way as a word in the index of a book has meaning: it is an indicator, not a measure of significance. If you want to understand its significance you need to look at what’s on the relevant pages.

      2. So the national statistic does have meaning, and the public authority should pay attention to it, and if necessary act – but not as if it were a measure. It should act by studying the reasons for the debt, advising householders of major problem areas they discover, and where these are not due to the households but to e.g. house prices, to clarify or redefine the pricing conventions, penalising those who continue to cause problems.

      3. Given that producers’ (and therefore these as consumers’) incomes are falling, the logical answer is not reform of taxation but separation of the variables, i.e. income and production, by introduction of a Citizen’s Income. (A credit card economy would do just that). Given continued motivation to make excess profits by the convention that money has positive value, still no. Government (central and local) should disqualify offending firms, creating and spending its own money to support local firms whose interest is in the job to be done.

      • shivz
        November 5, 2016 at 9:52 am

        Davetaylor1, your point 3: “Given that producers’ incomes are falling…” – not my words. On the contrary, my main argument was that thanks to bank and government money, injected directly to the household sector (credit&transfers), producers’ income and profits were increased, repeat, increased! (hence, the need for corporate tax reform).

        See for yourself: in the last 30 years American manufacturers increased their turnover by more than 3 times, whereas wages&salaries grew by a factor of 2 only. On the other hand, profits before tax grew by almost 4.

        To be sure, this was not the result of ‘labour exploitation’, but simply because less and less labourers performed ‘greater quantity of work’, on the one hand, and ‘exogenous’ additions to household income, on the other hand.

        [By your “Given that producers’ incomes are falling”, you probably misread my text, namely, “Given that producers’ income-generating expenditures are consistently falling (due to automation)…”].

      • November 5, 2016 at 10:54 am

        Was that too the result of my trying to “keep it simple”? What I failed to explain was my deduction from “Given that producers’ income-generating expenditures are consistently falling” that their incomes were falling.

        I agree this is not true, since big firms can borrow more (which they have done), retain more income by cutting the incomes of [parts] suppliers (e.g. by exchange rate fraud), selling off parts of themselves, raising prices, or selling more at lower prices (all strategies which seem to have been used by the 85% of companies that a Citybank spokesman advised economists were all they need concern themselves with).

        However, in the last of these, the present selling off for peanuts goods made of first class materials like solid oak and oil derivatives is probably only monetarily feasible by borrowing more, and in the long run only true so long as their resource income grow faster than their consumption of it, where of course precisely the opposite is true.

        Please don’t think my straight answers disparage your questions, Shiv (nor indeed Ken’s, despite those being more loaded with negativity). They have been great for helping me to spell out the detail of what I am saying. I tend to focus on landscapes and your questions have been like binoculars, helping me see close-ups.

  15. November 5, 2016 at 10:01 am

    From EEAU Survey – Critiques of Economic Theory

    “The Normative Foundations of Scarcity,” Real-World Economics Review, issue no. 61, 26 September 2012, pp. 22-39

    “This paper shows that while economic theory claims to be an objective and positive scientific theory, taking scarcity as the core of economics involves making several normative judgements. Thus, foundations of modern economic theory are normative, which lends further support to the conclusion that modern economics is an ideology.”

    So whether the value of money is positive or negative is a “normative judgement”?

  16. shivz
    November 5, 2016 at 11:02 am

    Davetaylor1, thanks. “(nor indeed Ken’s, despite those being more loaded with negativity)”. Who is Ken? Have not seen any post under such name.

  17. November 7, 2016 at 12:20 pm

    Interesting discussion. How did all this come to be? If we assume that such divisions and “normal” ways of life did at one time not exist, we must consider the history of their creation. Homo sapiens is not based on genetic and evolutionary history a tolerant species. It does not “play well with others.” For example, Homo sapiens destroyed the other human species (Neanderthals, etc.), it seems whenever they encountered one another. Until just one species was left. Homo sapiens. Homo sapiens also throughout its history has invented divisions within the species, e.g., races, classes, intelligence, etc. And the divisions we are discussing here, economic. The obvious question, for me is why don’t homo sapiens simply share equally in the resources available. Part of the answer is my above comments on the intolerance of homo sapiens. Some simply deserve less than others. The other part is the effort of home sapiens (mostly confusing and unsuccessful) to set out how and what a “fair” division of resources is. For me, these two factors are the root of the situation depicted in the graph. To solve it first homo sapiens need to be brought back into a single tribe, with tribal duties, responsibilities, and clear and enforceable codes of law and morality. Second, based on inclusion in the tribe just described rules and laws of fair and just distribution can be developed. Flexible enough to change as the type, level, and availability of resources change, but rigid enough to ensure great differences in resource distribution among the population do not develop. A balancing with which homo sapiens has little experience over the last 20,000 years, but a great deal of experience for the 180,000+ years before that time.

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