Inequality — “X” Marks the Spot — Dig Here

Inequality — “X” Marks the Spot — Dig Here, by Stan Sorscher. Something happened in the early to mid-70’s, according to US Productivity and earnings figures (presumably other western countries are similar):

US Productivity

  • After WWII, workers shared the gains from productivity until 1973. Then productivity continued to rise but workers did not benefit. Western wages have been stagnant in real terms since then. Ever notice how before 1973 a family only needed one bread winner to maintain a middle class lifestyle, but now we often work longer and usually two people work per middle class household? Sure technology has improved somewhat in 50 years, but most people are not better off otherwise.
  • Something happened in the mid-70’s to de-couple wages from productivity gains.
  • Workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.

The left wing Huffington Post’s answer to what happened in the early 1970s:

The sharp break in the mid-70’s marks a shift in our country’s … moral, social, political and economic values. … The Depression and World War II defined that generation’s collective identity …

The sudden change in the mid-70’s was not economic. First it was moral, then social, then political, ….. then economic. In the mid-70’s, we traded in our post-World War II social contract for a new one, where “greed is good.” In the new moral narrative I can succeed at your expense. I will take a bigger piece of a smaller pie. Our new heroes are billionaires, hedge fund managers, and CEO’s.

They got it the wrong way around. It’s like saying that rock music developed in the late 1950s and the early 1960s because youth, for the first time in history, became rebellious and expressed it through music, that there was a new moral and political mood. No, rock music is loud and the electric guitar was developed in the 1950s using the new fangled electronics — before that you needed an orchestra of massed instruments to get any volume. Duh.

Same with the 1970s change: morals and mood follow a technical change. That change was the end of the gold standard in 1971 and the consequent financialization of the economy, freed from hard constraint and now in the hands of financial smarties. It particularly took off after 1982 when inflation was stabilized. Now most of the benefits of economic growth go to a small sliver of society who manufacture and control money, and use it to speculate.

Graph of debt to gdp

Another technical change was the explosion of regulations from a quickly expanding bureaucracy, starting in the late 1960s.