Every technological advance, from the stone axe to the modular recycled plastic house, is supposed to make human life easier. We're supposed to produce more of what we need with less labour. If that's not what happens, then either 1. there are too many of us or 2. somebody's hijacked the advances or 3.both.
This not what the article is about. In economics the labor share, what he calls the household share, is the portion of gross domestic product, GDP, that is paid in wages to workers. The opposite of the labor share is the capital share, the portion of GDP that is paid in profits, the portion of GDP that rewards investment.
The discussion is about the split of income, not the absolute amount of income. The labor share is roughly the demand in the economy and the capital share is roughly the supply in the economy, the money available for investment. It is roughly because investment creates demand too and workers save creating investment, which creates some crosstalk between the two.. But labor share equals demand and capital share equals supply are good approximations. We can certainly say that increasing the labor share increases demand and decreases the capital share and supply in the economy, investment. And decreasing the labor share decreases demand and increases the capital share and supply.
For thirty years we have actively pursued policies to increase the capital share and to decrease the labor share. It is called supply side economics because the theory is that the economy always has enough labor, a surplus. and the only way to employ that labor is to increase investment in new production facilities by increasing the amount of money available for investment. This means that we should increase income inequality by increasing the income of the rich and suppressing the incomes of everyone else because the rich have a greater propensity to invest.
While you can argue thirty years ago we possibly did have enough investment in the real economy there is no possible argument that we have not enough capital now for investment. After thirty years we are drowning in excess capital. It is what is fueling all of the asset bubbles that we are seeing in the financial markets and the recent one in the housing market. Clearly what we are lacking now is demand. Investors won't build new production facilities if they know that there is no one who can buy the products produced. The promise of supply side economics to improve the economy hasn't been realized. In fact, in the supply side era both growth and investment have declined, not gone up as was promised.
What the economy needs is more demand, a higher labor share and a lower capital share, supply. What this article says is that no one country can switch over to a demand led economy from what we have now, a supply led one. This is because of one of the ways that we switched from a demand led one thirty years ago, globalization, which is one of the many ways that we used to suppress wages.
Because of globalization the increase in demand would mainly benefit countries that are still suppressing wages, countries like China and Germany.
The relative decrease in wages that the not rich have suffered over the last thirty years has actually increased the number of people in the labor pool. We have put our wives to work to try to make up the short fall in wages. This makes things worse not better.
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