Mish's Global Economic Trend Analysis |
- Income Inequality Explained: Why Wages Don't, Won't, and Can't Keep Up With Productivity
- Hurry! Only 121 Shopping Days Left Before Christmas; What to Expect This Holiday Season; Perpetual Christmas
- Brazil Plans $60 Billion Currency Intervention Scheme; Indonesia Abandons Intervention, Adopts Other Measures
| Income Inequality Explained: Why Wages Don't, Won't, and Can't Keep Up With Productivity Posted: 25 Aug 2013 10:36 PM PDT By now, everyone is well aware that real wages have not kept up worker productivity. But why is that? The Fed, government bureaucrats, and economists are puzzled by the phenomenon as well as what to do about it. I can explain easily, but first let's zero in on what is happening. Workers Don't Share in Companies' Productivity Gains In stark contrast to the great American dream, CNN notes Workers don't share in companies' productivity gains. Companies are on a tear in terms of productivity and profits, but they aren't sharing much of the gains with their workers.Real Wages vs. Productivity  CNN states "Global competition and national deregulation have kept compensation down, while the decline of union power weakened workers' ability to bargain for higher pay." Where Did the Productivity Go? Is the demise of unions and deregulation really the story? The answer is "no", but first consider superficial analysis by Paul Krugman in Where The Productivity Went. Where did the productivity go?The Wedge Between Productivity and Wages Mark Thoma commented on Krugman's post in his Economist's View take on The Wedge Between Productivity and Wages Inequality has reverted to levels unseen since the Gilded Age, financial regulation has waned, monopoly power has increased, union power has been lost, and much of the disgust with the political process revolves around the feeling that politicians are out of touch with the interests of the working class.Who Will Start The Conversation? Thoma asks "Who will start the conversation?" I am more than happy to start the conversation (and indeed already have on numerous occasions). Nonetheless, let's try once again, starting with a link a close friend sent just today: "A Peek Inside Tesla's Robotic Factory" I invite you to read the article, but please watch the video. Technology Overtakes Demographics Watching that video should explain many things. The key point that should be easy to spot is technology has surpassed demographics. Krugman's Mea Culpa Paul Krugman was let to the recognition party as evidenced by his article Is Growth Over? "Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots."Robots, Demographics, the Fed Amusingly, Krugman admitted in December of 2012 that he did not understand what was happening (let alone what to do about it). In Human Versus Physical Capital Krugman stated ... So the story has totally shifted; if you want to understand what's happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn't grasp this until recently. But it's really crucial.Robots, Demographics, the Fed Not only was Krugman was late to the problem, he also missed the central cause of the problem, who is to blame, and what to do about it. As noted above, technology has overtaken demographics. Before that happened, the Fed (central banks in general) could inflate at will, waiting for wages to rise with inflation. However, the natural state of affairs as a result of productivity increases is falling prices (not rising nominal wages). One look at computer prices (where there is no government or union interference) should suffice to prove the point. Yet the Fed is hell bent on preventing price deflation. The Fed succeeded but it has been a Pyrrhic victory. Prices are going up, but wages have not kept up. It is as simple as that. In the absence of Fed policies, wages would be stable to declining, but prices would fall more, and thus real wages would rise. Instead, and as a direct result of Fed inflationary policies, profits have gone to those with first access to money, notably banks and the already wealthy. The solution is to get rid of the Fed and fractional reserve lending, not tax robots or increase inflation as Krugman and others hypothesize. Unfortunately, we see all sorts of preposterous proposals by various inflation proponents stating that more inflation is the key to success. For example, Noah Smith, economist author of the "Not Quite Noahpinion" blog, recently proposed 5% inflation stating "Inflation makes you richer ... to the benefit of the young and the poor ... which is why conservatives don't like inflation"! For details of Noah's Alice in Wonderland economic thesis, please see Ivory Tower Academics, Inflation, and Kindness. Bottom Line The Fed and its inflationary policies are directly responsible for the massive rise in income inequality, yet numerous economists promote more inflation and taxation of robots as the solution. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 25 Aug 2013 01:53 PM PDT Better hurry. There's "only" 121 shopping days left before Christmas. If you think that sounds ridiculous so do I. But all it takes is for one major retailer to start Christmas promotions a few days earlier than last year, and all the lemming fall in line. Thus, retailers en masses started bombarding customers with Christmas promotions three days sooner this year than last. What to Expect This Holiday Season MarketWatch says Wal-Mart's free layaway launch foreshadows a competitive holiday to come. Many top retailers have cut their full-year earnings outlooks, a clear indication they see a rough holiday season ahead.Christmas in August As goes Wal-Mart, so goes the rest of retail. On Thursday CNBC stated Retailers start Xmas deals. Even before the school bells are ringing for many families, retailers are sounding sleigh bells."Perpetual Christmas" So when does Christmas in July start? Heck, why not perpetual Christmas? And I have just the slogan: "It's always Christmas at Wal-Mart". And if it's "Always Christmas", there's never any shopping days left - so you really better hurry with that shopping! Wal-Mart better grab this slogan before Amazon does. Retailers seem to be worried. But if consumers behave rationally for a change, it will be a good thing. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 25 Aug 2013 10:59 AM PDT The Financial Times reports Brazil, Indonesia launch measures to shore up their currencies. Brazil and Indonesia have moved to stem the declines in their currencies and shore up confidence at the end of a torrid week for emerging markets where local borrowing costs hit a two-year high.Brazil's Currency War These moves by Brazil are rather amusing since Brazil launched a "currency war" while complaining bitterly over the past two years that its currency was too strong. Flashback March 3, 2012: Brazil Declares New Currency War on US and Europe; Japan Losing Balance of Trade Battle Brazil has declared a fresh "currency war" on the US and Europe, extending a tax on foreign borrowings and threatening further capital controls in an effort to protect the country's struggling manufacturers.Be Careful of What You Ask Countries need to be careful of what they ask as they just might get it. Brazil got what it asked and now does not want it. OK Guido, what happened to the increased competitiveness you thought you were going to get? Brazil's currency madness should provide a lesson for Japan, but it won't. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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