Tag Archives: Stephen King

Labor’s Share of National Income Is Falling

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The latest issue of the Economist shows quite dramatically in the article “Labour Pains” that labor’s share of national income is dropping.  In the U.S. workers’ wages have historically been about 70% of GDP.  In the early 1980s this figure started falling and is now 64%.  Similar declines are occurring in many other countries.
This phenomenon is closely related to what others are observing as I have reported recently.  Tyler Cowen’s new book “Average is Over” discusses the threat of technology to the middle class.  Daniel Alpert in “The Age of Oversupply” talks about the increase of competition from various global forces.  Stephen King’s “When the Money Runs Out” makes the case that “a half-century of one-off developments in the industrialized world will not be repeated.”
Historically the stability of the wage to GDP ratio “provides the link between productivity and prosperity.  If workers always get the same slice of the economic pie, then an improvement in their average productivity – which boosts growth – should translate into higher average earnings. … A falling labour share implies that productivity gains no longer translate into broad rises in pay.  Instead, an ever larger share of the benefits of growth accrues to the owners of capital.”
A shrinking share of a GDP which itself is slowing down is a double whammy.  The only way to address the problem effectively is to deal with the root causes.
First of all, we need to boost overall economic growth by the proven methods of broad based tax reform, especially including much lower corporate tax rates, making regulations less onerous, carrying out immigration reform, and giving special attention to helping entrepreneurs create new businesses.
How can we, additionally, help low skilled and low waged workers move up the ladder?  Long term the most worthwhile action is to change K-12 education by putting more emphasis on career education to produce more highly skilled workers.  Short term, we should provide crash job training for the estimated three million current job openings in the U.S. which require skilled workers.
Economic inequality in the U.S. is becoming progressively worse all the time.  There are fiscally sound ways to address this alarming problem and it is important that they be clearly and forcefully advocated.

A Pessimistic View of America’s Future V. When Wealth Disappears

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Several of my recent posts have been pretty gloomy.  “Average is Over,” “What, Me Worry?” and “The Age of Oversupply,” for example.  Here’s another gloomy one.  The British economist, Stephen King, has an Op Ed column in last Monday’s New York Times, “When Wealth Disappears.”, based on his new book, “When the Money Runs Out.”
Our GDP grew at 3.4% per year in the 1980s and 1990s, then dropped to a growth rate of 2.4% from 2000 – 2007.  Since the Great Recession ended it has averaged barely 2% per year.  The Democrats say we just need more fiscal stimulus and monetary easing to boost the growth rate.  The Republicans say deficit reduction including entitlement reform, slashing regulations and tax reform is what is needed to revive the economy.
“Both sides are wrong,” says Mr. King.  “The underlying reason for the stagnation is that a half-century of one-off developments in the industrialized world will not be repeated.”  These one-off developments are: the unleashing of global trade after World War II, financial innovation such as consumer credit, expansion of social safety nets which reduces the need for household savings, reduced discrimination which has flooded the labor market with women and, finally, the great increase in the number of educated citizens.
What Mr. King recommends is “economic honesty, to recognize that promises made during good times can no longer be easily kept.  What this means is a higher retirement age, more immigration to increase the working age population, less borrowing from abroad (by holding down deficit spending), less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact which doesn’t cannibalize the young to feed the boomers, and a further opening of world trade.”
“Policy makers simply pray for a strong recovery.  They opt for the illusion because the reality is too bleak to bear.  But as the current fiscal crisis demonstrates, facing the pain will not be easy.  And the waking up from our collective illusions has just begun.”
It is obviously time to bite the bullet, lower our expectations, and start doing the hard work needed for even incremental economic progress.