The Fundamentals
Kevin Drum posted this chart earlier today and I think it tells you a lot of what you need to know about our current predicament. Wages for average people are, on some level, the real fundamentals of the economy. And simply put, they haven’t been growing. And yet there’s been all this production. And it’s not as if we’ve been operating as some kind of huge net exporter during this period. All that production’s getting consumed and then a bunch more production is getting consumed. Thanks to an increase in debt and to innovations in debt instruments.
It was typical to hear a little while ago that there couldn’t possibly be anything wrong with the economy because all these people own flat-screen televisions. Now I think we’re seeing that an economy that comes up with new ways to lend average people money is no substitute for an economy that comes up with new ways for average people to earn money.
43 Responses to “The Fundamentals”
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October 17th, 2008 at 3:32 pm
Health insurance. Health insurance. Health insurance. Health insurance.
October 17th, 2008 at 3:35 pm
Wouldn’t you want to use per-capita GDP?
October 17th, 2008 at 3:38 pm
“Wages
for average people are, on some levelare the real fundamentals of the economy.”October 17th, 2008 at 3:44 pm
I have the solution!
JUBILEE! Universal Debt Forgiveness!
October 17th, 2008 at 3:44 pm
Now compare that graph with this one from last month, and you see how a mortgage crisis is made.
October 17th, 2008 at 3:49 pm
“A riot is an ugly thing .. but I think it’s about time we had one.”
October 17th, 2008 at 3:56 pm
If health insurance expenditures, which have risen dramatically for those earning the medium wag, are worthless, why all the fuss about it by the candidates? McCain’s scheme to eliminate the tax-deduction for employer health insurance and trade it for an individual credit would greatly increase the nominal median wage by this measure (since money employers now spend on health insurance would go to cash wages), even if it doesn’t improve their well-being at all.
October 17th, 2008 at 4:11 pm
Uh, if you expanded this graph out to the late ’70s, the median wage would still be nearly flat and the GDP would still be growing linearly. The economy has simply figured out methods to prevent increases in the real wages of laborers, ever, and has known for a long time. You go Mao if you don’t like it, or maybe Perot, not technocrat.
October 17th, 2008 at 4:13 pm
daveNYC Says:
“Wouldn’t you want to use per-capita GDP?”
Of course not; that is an *average*, not a *median*. A small proportion of people/households with very high earnings would skew it.
October 17th, 2008 at 4:27 pm
He’s saying that you want to compare median wage growth to per-capita GDP (ie, average) growth, precisely because the latter is skewed by people/households with very high earnings. The thing is that aggregate GDP growth is skewed by the increase in population over time. The real story is about how productivity gains in the economy aren’t translating to higher median wages.
October 17th, 2008 at 4:29 pm
Median wage is not a meaningful indicator of economic status or standard of living.
October 17th, 2008 at 4:29 pm
So, how do we reverse this trend?
I can’t really think of anything short of a renaissant labor movement expanded to low-level white collar and service workers that would do the trick.
October 17th, 2008 at 4:32 pm
time for some good old fashioned demand side economics.
October 17th, 2008 at 4:38 pm
Matt’s chart is completely bogus. GDP will rise with population growth absent any change in distribution.
October 17th, 2008 at 4:46 pm
“So, how do we reverse this trend?”
Two ideas to start:
1) Very steep and high marginal tax schedules, to the point that no one makes a million unless they love the work, because the gov’t takes it all. Or makes 100k, for that matter.
2) Gov’t as employer of last resort, keeping unemployment a couple points below NAIRU, thereby putting massive upward pressure on wages. Make certain nobody needs a job and force employers to bid & bargain for every worker. Handle the inflation with taxes & forced savings, like SS & Medicare.
Maybe Mao would be easier?
October 17th, 2008 at 4:50 pm
While I could only find guaranteed per capita GDP growth for 2002-2005 it is consistent with that chart in that period. I found 8% growth of per capita GDP from beginning 2002 to end 2005.
That data is per capita GDP growth.
October 17th, 2008 at 5:13 pm
Matt’s graph is not completely bogus. It’s about 50% bogus. Allowing for population growth cancels only about half the GDP rise. The basic effect he’s talking about is very real, though not as big as the graph would indicate.
October 17th, 2008 at 5:13 pm
From 2002 to 2006,
the estimated population growth was 3.9%.
the GDP growth (unadjusted) was 25.8%
the GDP growth (adjusted) was 12.1%
per capita GDP growth (adjusted) was 7.9%
Being as media wages are looking a bit flat in the chart, I’d say someone is getting screwed, and (in this broad case) it ain’t by the Mexicans.
Population – http://www.census.gov/popest/archives/2000s/
GDP – http://www.data360.org/dsg.aspx?Data_Set_Group_Id=353
October 17th, 2008 at 5:14 pm
While I could only find guaranteed per capita GDP growth for 2002-2005 it is consistent with that chart in that period. I found 8% growth of per capita GDP from beginning 2002 to end 2005.
Since GDP and GDP per capita are two different things, it’s hard to know what “consistent with that chart” is supposed to mean. A rise in GDP may be “consistent” with any kind of change in GDP per capita, depending on population change. On your figure, GDP per capita rose at only about half the rate of GDP.
October 17th, 2008 at 5:20 pm
Matt’s graph is not completely bogus. It’s about 50% bogus.
Matthew Yglesias’s new and improved economic analysis: Now only 50% bogus!
Being as media wages are looking a bit flat in the chart, I’d say someone is getting screwed, and (in this broad case) it ain’t by the Mexicans.
As I said, median wage is not a meaningful indicator of economic status or standard of living. It ignores non-wage income, non-income economic benefits and the effects of taxes.
October 17th, 2008 at 5:27 pm
As I said, median wage is not a meaningful indicator of economic status or standard of living. It ignores [1]non-wage income, [2]non-income economic benefits and [3]the effects of taxes.
I disagree. Your statement would be true if there was a substantial divergence in the change of [1],[2], & [3] from the change in median wage. I haven’t seen evidence to support this.
October 17th, 2008 at 5:29 pm
Not over the period 2002 – 2006, in any case.
October 17th, 2008 at 5:55 pm
You mean Mixner’s supposed to come up with, you know, evidence and stuff? What a novel idea.
Seriously, Mixner, if you’ve got a point, make it. Are you saying that median nonwage income and nonincome benefits increased from 2002 to the present?
October 17th, 2008 at 6:00 pm
cmholm,
Sorry, you need evidence that wage change is a meaningful proxy for change in overall economic circumstances or standard of living, taking into account non-wage income (the Census Bureau lists 16 different kinds), non-income benefits (health insurance, pension plans, Medicare, Medicaid, food stamps, housing subsidies and numerous other public and private economic benefits) and the effects of taxes (which changed significantly between 2002 and 2006) before you can claim that wage data alone tell us anything meaningful at all about how GDP growth has been distributed.
October 17th, 2008 at 6:07 pm
“Now I think we’re seeing that an economy that comes up with new ways to lend average people money is no substitute for an economy that comes up with new ways for average people to earn money.”
Well said, if say so myself.
October 17th, 2008 at 6:09 pm
Are you saying that median nonwage income and nonincome benefits increased from 2002 to the present?
I didn’t say that, no. I said you need to examine such income and benefits, as well as the effects of taxes, in order to draw anything meaningful conclusions about what’s happened to the standard of living over that period.
But since you mention it, yes, nonwage income and non-income benefits have increased from 2002 to the present.
October 17th, 2008 at 6:25 pm
I don’t know what the resulting graph would look like, but here’s some data on total compensation cost (wages plus benefits) over the last several years.
http://www.bls.gov/news.release/eci.nr0.htm
Eyeballing it, compensation cost rose a little more than 3% per year – with government employees faring better than the private workforce.
Meanwhile, according to this handy-dandy website, Real GDP growth over 2002 – 2007 was 2.8%
http://www.measuringworth.com/index.html
Which says to me that there has been growth in compensation relative to GDP, and Kevin’s graph is bogus.
In other words, if you’re going to talk about wages, you have to talk about benefits too. Otherwise, it’s perfectly fair for conservative types to talk about “people paying no taxes” by ignoring sales taxes. Sauce, Goose, Gander.
October 17th, 2008 at 8:34 pm
GDP and income data from the BEA and the Census Bureau also demonstrates that Kevin/Matthew’s chart is completely meaningless as an indicator of the distribution of GDP.
As shown by BEA Table 7.1, the share of GDP going to personal income (which includes employee wages and benefits, other private cash income such as dividends and rents, and all cash and non-cash government benefits) was almost exactly the same (84%) in 2007 as in 2002.
And income share data from the Census Bureau shows that the income share received by the middle fifth of households was also exactly same (14.8%) in 2007 as in 2002.
The bottom line is that income data shows no significant change in the distribution of per capita GDP. Per capita GDP has grown, and median households are getting just as large a share of it now as they were in 2002. If median wages have not kept pace with per capita GDP growth, it is only because other forms of income and benefit received my median households have increased faster than GDP growth.
October 18th, 2008 at 3:55 am
Meanwhile, according to this handy-dandy website, Real GDP growth over 2002 – 2007 was 2.8%
http://www.measuringworth.com/index.html
That’s asinine. Compensation costs include multi-hundred million dollar salaries of CEOs which have no effect on median wage. In case you’ve been living in a cave the last 7 years, the principle complaint in this argument concerns disparity in gains of compensation during this recovery. It is not that no one is getting more pay, it is that the wealthy are the only ones getting more pay.
October 18th, 2008 at 7:57 am
Such a graph should take into consideration differences in demographic changes. If poor people are having more children than rich, I would expect the median wage to decrease. As the population of blue collar and poor Hispanics grows at the same time that rich whites have fewer children, then median wages should be falling by a lot.
October 18th, 2008 at 10:10 am
@njorl,
Pick the response you like:
a) If you have hard data on compensation cost sans CEOs, feel free to provide it. Personally, I suspect it will matter far, far less than you think it will, since most of the high-end get their money from capital gains.
b) If you’re going to remove CEOs from the one measurement (compensation growth), you’ll also have to remove them from the GDP, just to be consistent.
c) Whether or not it is ‘asinine’ to include “the rich” in compensation growth analysis, it is surely, surely ‘asinine’ to not include benefits in employee compensation. Which is where the bogosity comes from in Kevin’s graph.
But then, that’s typical of just about everyone in the world – pay really close attention to the details (methodology, mechanisms, mathematics,etc) in data that disagrees with one’s philosophical positions, and gloss over them as minor issues in data that supports one’s philosophical positions.
October 18th, 2008 at 10:19 am
So what are these other forms of benefit that are growing? I presume heath care fits in there. Anything else that’s big?
October 18th, 2008 at 5:08 pm
Njorl,
Compensation costs include multi-hundred million dollar salaries of CEOs which have no effect on median wage. In case you’ve been living in a cave the last 7 years, the principle complaint in this argument concerns disparity in gains of compensation during this recovery.
And as I showed above, your complaint is without merit. There has been essentially no change since 2002 in either the share of GDP going to personal income (84%), or the share of personal income going to middle-income households (slightly less than 15%).
October 18th, 2008 at 5:19 pm
So what are these other forms of benefit that are growing?
Employer-provided contributions to health insurance, pension plans and retirement accounts; government social insurance; proprietors’ income; interest and dividend income; government-provided old-age, survivors, disability and health insurance benefits, unemployment insurance benefits, veterans benefits, family assistance, and other government-provided benefits.
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