Moving 5% of GDP to labor's share . . . would it hurt the economy?

[ksen]

From this thread:

It's the left that thinks there is an unlimited amount of profit that companies have.

Here we go: unlimited pool of profits canard.

Here we go: unlimited pool of profits canard.

That's Axulus point, there isn't an unlimited pool of profits.

That's Axulus point, there isn't an unlimited pool of profits.

Nobody disagrees with that.

But good point! I guess.

But the belief is that we add additional costs to business and the only thing will happen is that profits will shrink but everything will go along fine.

Where did we ever say "additional infinite costs"?

Labor share of GDP has dropped roughly 5% of GDP since around the early 80s. We've, or at least a couple of us, been arguing that labor share ought to go back to its historical 65% in order for economic growth to get back to historical norms as well as to reinvigorate the bottom 90% of workers.

So at most, in a $17 trillion economy we're talking about shifting $850 billion back to wages.

That's hardly "infinite."

I put this as its own thread so Axulus's doesn't get too derailed.

So how about it? Would raising wages +/-$850 billion dollars hurt the economy? Given that if the Labor/Capital GDP split had stayed at historical norms wages would currently be at that level.

 

[coloradoatheist]

From this thread:

Here we go: unlimited pool of profits canard.

Here we go: unlimited pool of profits canard.

That's Axulus point, there isn't an unlimited pool of profits.

That's Axulus point, there isn't an unlimited pool of profits.

Nobody disagrees with that.

But good point! I guess.

But the belief is that we add additional costs to business and the only thing will happen is that profits will shrink but everything will go along fine.

Where did we ever say "additional infinite costs"?

Labor share of GDP has dropped roughly 5% of GDP since around the early 80s. We've, or at least a couple of us, been arguing that labor share ought to go back to its historical 65% in order for economic growth to get back to historical norms as well as to reinvigorate the bottom 90% of workers.

So at most, in a $17 trillion economy we're talking about shifting $850 billion back to wages.

That's hardly "infinite."

I put this as its own thread so Axulus's doesn't get too derailed.

So how about it? Would raising wages +/-$850 billion dollars hurt the economy? Given that if the Labor/Capital GDP split had stayed at historical norms wages would currently be at that level.

Depends on where and how you are going to try and get that increase.

 

[Nice Squirrel]

From this thread:

Here we go: unlimited pool of profits canard.

Here we go: unlimited pool of profits canard.

That's Axulus point, there isn't an unlimited pool of profits.

That's Axulus point, there isn't an unlimited pool of profits.

Nobody disagrees with that.

But good point! I guess.

But the belief is that we add additional costs to business and the only thing will happen is that profits will shrink but everything will go along fine.

Where did we ever say "additional infinite costs"?

Labor share of GDP has dropped roughly 5% of GDP since around the early 80s. We've, or at least a couple of us, been arguing that labor share ought to go back to its historical 65% in order for economic growth to get back to historical norms as well as to reinvigorate the bottom 90% of workers.

So at most, in a $17 trillion economy we're talking about shifting $850 billion back to wages.

That's hardly "infinite."

I put this as its own thread so Axulus's doesn't get too derailed.

So how about it? Would raising wages +/-$850 billion dollars hurt the economy? Given that if the Labor/Capital GDP split had stayed at historical norms wages would currently be at that level.

The increase in consumer spending would boost the economy by a greater amount.

 

[coloradoatheist]

The increase in consumer spending would boost the economy by a greater amount.

Depends on how. Certain sectors may benefit from it, while others lose from it. If an increase in demand and spending didn't cause a crash later, 2007-2009 would never have happened from the housing increases.

 

[ksen]

Depends on where and how you are going to try and get that increase.

How about from the places the decrease went to and by reversing some policies that helped it happen?

 

[coloradoatheist]

Depends on where and how you are going to try and get that increase.

How about from the places the decrease went to and by reversing some policies that helped it happen?

The ones that started in the early 70s?

 

[ksen]

Anyway, the thrust of this thread isn't to get into arguing details.

I'm wondering if you think 5% more of GDP going towards wages is a good thing, a bad thing or you're not sure and give reasons we can discuss if you'd like.

Looks like from your first post you're in the "depends" category.

So moving 5% of GDP back towards labor wouldn't necessarily be harmful iyo?

 

[coloradoatheist]

Anyway, the thrust of this thread isn't to get into arguing details.

I'm wondering if you think 5% more of GDP going towards wages is a good thing, a bad thing or you're not sure and give reasons we can discuss if you'd like.

Looks like from your first post you're in the "depends" category.

So moving 5% of GDP back towards labor wouldn't necessarily be harmful iyo?

If it's achieved naturally no, the rules to try and get there may be.

 

[untermensche]

The more money in the hands of people who will spend it is always a good thing.

A few hoarding money or taking money from here and investing there is never a good thing.

 

[lpetrich]

Peter Turchin: US-History Cycles has *lots* of nice stuff. Like this:

PT has identified a long-term cycle, but his data are only enough to identify about 1.5 complete ones. But it is still interesting what correlations he finds.

The Double Helix of Inequality and Well-Being | Social Evolution Forum noting Peter Turchin – The history of inequality He collected several sorts of statistics, detrended them, and then normalized them to look for cycles. Normalized: mean = 0, stdev = 1.

[table="class:grid"]
[tr][td]What[/td][td]Proxy[/td][td]Direction[/td][/tr]
[tr][td]Labor oversupply[/td][td]Proportion of population born outside the USA[/td][td]-[/td][/tr]
[tr][td]Price of labor[/td][td]Wage in relation to GDP per capita[/td][td]+[/td][/tr]
[tr][td]Biological well-being/Health[/td][td]Average stature and life expectancy[/td][td]+[/td][/tr]
[tr][td]Social optimism[/td][td]Age at first marriage (both sexes)[/td][td]-[/td][/tr]
[tr][td]Wealth inequality[/td][td]Largest fortune in relation to the median wage[/td][td]-[/td][/tr]
[tr][td]Intra-elite competition/conflict[/td][td]Political polarization in the Congress[/td][td]-[/td][/tr]
[tr][td]Sociopolitical instability[/td][td]Fatalities per 5 years per 1 million population[/td][td]-[/td][/tr]
[/table]

1800: 0.4
1824: 0.8 - Era of Good Feelings
1904: -1.4 - Gilded Age bottoming out
1960: 1.3 - Eisenhower/Kennedy era
2000: -0.3

So wages being a relatively high fraction of GDP is correlated with relatively little immigration, good physical health, early marriage (social optimism), relatively egalitarian wealth distribution, low political polarization in Congress, and relatively little civil strife.

 Wage share has relatively recent numbers. From the second graph, it hovered around 50% between 1947 and 1974, and it declined after that. It went down to 45% in 1993, then up to 47% in 2000, then down again to about 43% at the present day.

So I think that the US economy could easily survive raising the wage fraction of GDP to 50%.

 

[Loren Pechtel]

So how about it? Would raising wages +/-$850 billion dollars hurt the economy? Given that if the Labor/Capital GDP split had stayed at historical norms wages would currently be at that level.

It would be like feeding a fat person 1,200 calories/day.

Oops--you can't select out only the fat people--you're feeding everyone 1,200 calories/day. You just killed some anorexics. Over time you cause enough weight loss you start killing more.

- - - Updated - - -

Depends on where and how you are going to try and get that increase.

How about from the places the decrease went to and by reversing some policies that helped it happen?

Why don't you start it--throw away all your computers.

 

[lpetrich]

Depends on where and how you are going to try and get that increase.

How about from the places the decrease went to and by reversing some policies that helped it happen?

Why don't you start it--throw away all your computers.

Evidence given: {}

Loren Pechtel, what is asserted without evidence can be dismissed without evidence. Including many of your assertions, it must be pointed out.

I think that Peter Turchin, Thomas Piketty, and others have MUCH better explanations: elites trying to enrich themselves at the expense of the rest of the population. Because that's been happening with forcing down of wages and benefits.

I'm sure that the capitalism groupies here will howl with outrage at how I blasphemed their gods, but if that's how they are going to react to unpleasant truths, then so be it.

 

[Axulus]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock and if you deduct the increase in the share going to housing (mortgage interest, rents). Don't forget that GDP does not take into account depreciation in the capital stock, so if you ignore any changes in this aspect, you are missing the bigger picture. Greater depreciation (from two factors: capital investment losing its value quicker or though having greater real value of capital investment per capita) means more must be reinvested just to maintain the country's capital stock.

Imagine the extreme scenario of an economy that consists of one factory worth $10M. GDP is $10M/year. It makes a huge difference to the actual wealth of that economy, and to the owners of the factory in that economy, and the ability to shift money around to other categories if that factory loses $1M in value per year vs $2M in value per year, given a constant level of GDP.

It is absolutely essential to take this into account when discussing this topic.

Here is the paper on the topic (net capital income is capital income minus depreciation):

In the postwar era, developed economies have experienced two substantial trends
in the net capital share of aggregate income: a rise during the last several decades,
which is well-known, and a fall of comparable magnitude that continued until the
1970s, which is less well-known. Overall, the net capital share has increased since
1948, but when disaggregated this increase comes entirely from the housing sector:
the contribution to net capital income from all other sectors has been zero or slightly
negative, as the fall and rise have offset each other.

http://www.brookings.edu/~/media/projects/bpea/spring-2015/2015a_rognlie.pdf

The question then becomes, who pays for your proposed wage increases? Real estate owners that have zero employees? How does that work?

 

[Axulus]

Depends on where and how you are going to try and get that increase.

How about from the places the decrease went to and by reversing some policies that helped it happen?

How do you propose to reverse the rise in the share going to real estate?

 

[laughing dog]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock and if you deduct the increase in the share going to housing (mortgage interest, rents). Don't forget that GDP does not take into account depreciation in the capital stock, so if you ignore any changes in this aspect, you are missing the bigger picture. Greater depreciation (from two factors: capital investment losing its value quicker or though having greater real value of capital investment per capita) means more must be reinvested just to maintain the country's capital stock.

Imagine the extreme scenario of an economy that consists of one factory worth $10M. GDP is $10M/year. It makes a huge difference to the actual wealth of that economy, and to the owners of the factory in that economy, and the ability to shift money around to other categories if that factory loses $1M in value per year vs $2M in value per year, given a constant level of GDP.

It is absolutely essential to take this into account when discussing this topic.

Here is the paper on the topic (net capital income is capital income minus depreciation):

In the postwar era, developed economies have experienced two substantial trends
in the net capital share of aggregate income: a rise during the last several decades,
which is well-known, and a fall of comparable magnitude that continued until the
1970s, which is less well-known. Overall, the net capital share has increased since
1948, but when disaggregated this increase comes entirely from the housing sector:
the contribution to net capital income from all other sectors has been zero or slightly
negative, as the fall and rise have offset each other.

http://www.brookings.edu/~/media/projects/bpea/spring-2015/2015a_rognlie.pdf

The question then becomes, who pays for your proposed wage increases? Real estate owners that have zero employees? How does that work?

That sort of analysis is very narrow minded. We do not deduct depreciation from human capital in the calculation of labor income. I wonder what the shares would look like if we had an agreed upon methodology for calculating the replacement cost of human capital and deducted that from labor income as well.

 

[arkirk]

Anyway, the thrust of this thread isn't to get into arguing details.

I'm wondering if you think 5% more of GDP going towards wages is a good thing, a bad thing or you're not sure and give reasons we can discuss if you'd like.

Looks like from your first post you're in the "depends" category.

So moving 5% of GDP back towards labor wouldn't necessarily be harmful iyo?

Nervous nellies, Axulus and Coloradoatheist will be back to you shortly with their "camel's nose in the tent" argument. They really worry a lot that the filthy rich remain filthy rich. I don't think either one of them are filthy rich. They have simply had a little too much free market cool-aide. That 5% would be a lot more than a 5% raise for the recipients and just a 5% drop in profits. It certainly is affordable. Their fear is that when the rabble gets 5% it will develop the same greedy hunger for money the 1% has. That may just take a little time to develop. Actually we need to add environmental restraints to our economy in addition to distributive justice. Environmental adjustment of our society will hurt the 1% a whole lot more than a mere 5% income adjustment. Unlike the distributive issue, the environmental one cannot be bullied out of existence of brought under control without massive changes to our economy.

 

[fromderinside]

Nervous nellies, Axulus and Coloradoatheist will be back to you shortly with their "camel's nose in the tent" argument. They really worry a lot that the filthy rich remain filthy rich. I don't think either one of them are filthy rich. They have simply had a little too much free market cool-aide.

Where's a forum Jim Jones when you need one? Darn.

 

[coloradoatheist]

Anyway, the thrust of this thread isn't to get into arguing details.

I'm wondering if you think 5% more of GDP going towards wages is a good thing, a bad thing or you're not sure and give reasons we can discuss if you'd like.

Looks like from your first post you're in the "depends" category.

So moving 5% of GDP back towards labor wouldn't necessarily be harmful iyo?

Nervous nellies, Axulus and Coloradoatheist will be back to you shortly with their "camel's nose in the tent" argument. They really worry a lot that the filthy rich remain filthy rich. I don't think either one of them are filthy rich. They have simply had a little too much free market cool-aide. That 5% would be a lot more than a 5% raise for the recipients and just a 5% drop in profits. It certainly is affordable. Their fear is that when the rabble gets 5% it will develop the same greedy hunger for money the 1% has. That may just take a little time to develop. Actually we need to add environmental restraints to our economy in addition to distributive justice. Environmental adjustment of our society will hurt the 1% a whole lot more than a mere 5% income adjustment. Unlike the distributive issue, the environmental one cannot be bullied out of existence of brought under control without massive changes to our economy.

You have two major arguments there. No. I said the problem might be with the implementation of to address the issue. The economy isn't better off we are just paying more for the same stuff. We could add three 0s to our currency and we are all a 1000 times richer right?

 

[arkirk]

Nervous nellies, Axulus and Coloradoatheist will be back to you shortly with their "camel's nose in the tent" argument. They really worry a lot that the filthy rich remain filthy rich. I don't think either one of them are filthy rich. They have simply had a little too much free market cool-aide. That 5% would be a lot more than a 5% raise for the recipients and just a 5% drop in profits. It certainly is affordable. Their fear is that when the rabble gets 5% it will develop the same greedy hunger for money the 1% has. That may just take a little time to develop. Actually we need to add environmental restraints to our economy in addition to distributive justice. Environmental adjustment of our society will hurt the 1% a whole lot more than a mere 5% income adjustment. Unlike the distributive issue, the environmental one cannot be bullied out of existence of brought under control without massive changes to our economy.

You have two major arguments there. No. I said the problem might be with the implementation of to address the issue. The economy isn't better off we are just paying more for the same stuff. We could add three 0s to our currency and we are all a 1000 times richer right?

Tell me why you seem to be so blind to the chronic unfairness in our economic system's distribution of pay to the people who do the real work? We are not talking about adding zeros to anything. That is just YOUR RANT. We are talking about simply distributing the proceeds of business differently...about 5% more differently. That is something that would make a big difference in a lot of lives and not unduly tax our economy. What you are failing to recognize is that this GDP has too many over compensated rent seekers attached to it who can take less and not even really feel any pain.

 

[Axulus]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock and if you deduct the increase in the share going to housing (mortgage interest, rents). Don't forget that GDP does not take into account depreciation in the capital stock, so if you ignore any changes in this aspect, you are missing the bigger picture. Greater depreciation (from two factors: capital investment losing its value quicker or though having greater real value of capital investment per capita) means more must be reinvested just to maintain the country's capital stock.

Imagine the extreme scenario of an economy that consists of one factory worth $10M. GDP is $10M/year. It makes a huge difference to the actual wealth of that economy, and to the owners of the factory in that economy, and the ability to shift money around to other categories if that factory loses $1M in value per year vs $2M in value per year, given a constant level of GDP.

It is absolutely essential to take this into account when discussing this topic.

Here is the paper on the topic (net capital income is capital income minus depreciation):



http://www.brookings.edu/~/media/projects/bpea/spring-2015/2015a_rognlie.pdf

The question then becomes, who pays for your proposed wage increases? Real estate owners that have zero employees? How does that work?

That sort of analysis is very narrow minded. We do not deduct depreciation from human capital in the calculation of labor income. I wonder what the shares would look like if we had an agreed upon methodology for calculating the replacement cost of human capital and deducted that from labor income as well.

You aren't making any sense. Typically one's human capital value increases with more job experience and training. This increase in value would need to be _added_ to compensation under your scenario.

Not only that, but the analysis is to compare the changes over a time period. Feel free to post your own analysis that such human capital appreciation/depreciation is significantly worse today than previous time periods. The burden is on you to make your own case that it is relevant.