
Cracking the Mystery of Labor's Falling Share of GDP - bufordsharkley
https://www.bloomberg.com/view/articles/2017-04-24/cracking-the-mystery-of-labor-s-falling-share-of-gdp
======
CriticalSection
It's not much of a mystery to crack.

The chart starts in 1950 with 63.6%. In that year, one out of three American
workers in the private sector were in a union. Today one out of fifteen
American workers in the private sector are in a union. In the rust belt, the
Wisconsin government has been waging a war against its unions, as it and other
states become so-called right to work states.

Insofar as this "increas[ing] the risk of social instability", one reason for
this is that more and more money is flowing to capital which doesn't even know
where to invest it. The main reason so much capital is idle is due to existing
overproduction (which you could also call underconsumption, it's the same
thing). Workers/consumers are short-changed, so can buy less, whereas more
money goes to capital, to build more products - for people who can't afford
them. You can see what the main problem is. Consumer debt can solve this
temporarily, but if the cut of the pie stays the same, it just postpones the
crisis and makes it worse.

Things are fairly simple - there is an aristocracy of heirs who own rights to
expropriate surplus labor time (which they call profits) from those of us who
work and create all wealth. They are very well organized in industry,
government, and media. They don't want the people who do the work and create
the wealth, us (most of us), to be organized and as aware as they are. They
say unions breed laziness, but these heirs have never worked a day in their
life.

~~~
bufordsharkley
> there is an aristocracy of heirs who own rights to expropriate surplus labor
> time

As a Georgist, I tend to view Marxist critiques such as this as fairly
superficial. We agree that something wrong is happening, but a Georgist is
able to pin-point the point of unfairness and recommend a remedy, whereas the
Marxist believes that any employment generates a "surplus value" (how?), which
I'm skeptical is true much of the time.

In short, I see this line of reasoning as the result of conflating capital and
land, at the expense of the honest employer.

Unions are clearly a powerful tool to allow for collective bargaining, and
advance the position of labor. But I don't think it affects the fundamentals
of the economy―what is being produced, where. I tend to think unions have
declined in America largely because the efficiency of our economies have
declined in the places they were most effective.

~~~
oxide
The stuff we see in Wisconsin for example, IMO, is directly connected to the
1980's rhetoric and sentiment around unions that never went away.

While both sides have perfectly valid arguments for and against unionization,
there is no compromise or middle ground to be found, only partisanship from
the politicans who are charged with finding compromises, who have the power to
make and break unions.

I do agree with your point about efficency declining, but I also smell a fish
when it comes to partisan politics surrounding unionization of workers. Both
sides seem too concerned with ultimatiums and heel-digging.

Surely there is a way to compromise, but if neither side will sacrifice you
can't get anywhere at all.

~~~
r00fus
If you and another person are arguing over what's for dinner and the other
person's position is "lets eat tires" \- there is no compromise possible.

At some point, it's pretty easy to see that the anti-unionists simply want to
destroy all unions and collective wage-bargaining. End of story.

------
bufordsharkley
For what it's worth, I find the "landlords" explanation here extremely
compelling. In the last year, I've happened upon the works of the 19th century
economist Henry George (who identified landlordism as the root cause of
poverty) and found his distinction between land and capital to explain many of
the "paradoxes" we have in modern economics.

I recommend checking out his work, but if anybody is curious about details of
his economic theories, AMA.

~~~
simonh
I've not paid a landlord for two decades, but it seems to me that home owners
like myself compete with each other to bid up the price of property. If I earn
more, that gives me more capital with which to bid for a bigger house in a
better location and hopefully outbid someone else doing the same thing. So
disposable income flows directly into increasing house prices.his isn't
theory, it's what I've been doing for the last twenty years.

Edit: I'm not complaining, this effect has dramatically increased the values
of the two properties I have owned (one after the other) during that time. I
fully expect to come out well ahead, but it will be a problem for my children.
I expect to have to help them fund their first property purchases,
perpetuating the cycle.

~~~
jpmattia
> _but it seems to me that home owners like myself compete with each other to
> bid up the price of property_

That seems like a side effect of the global crash in interest rates: People
buying homes with cash are currently competing with borrowers with much less
than 20% down and low interest rates.

btw, this is somewhat intended, and is the reason the Fed dropped rates to
zero in the first place. If assets were not reflated, the recession would have
gone much deeper. Unfortunately, "assets being reflated" means, as one
example, people buying assets (homes) with cheap money.

It will be interesting as rates return to normal and the Fed starts to shrink
its balance sheet later this year.

~~~
bufordsharkley
Well, the classic model of how this _should_ work is:

1) Economy sags, people have little demand to borrow money for investment

2) Interest rates are lowered to spur investment

3) Investment takes place, economy recovers

4) People are much hungrier to borrow money for investment, so interest rates
increase

We haven't reached (4), and in addition, it should seem surprising that
borrowing money to put it into real estate will help the economy to recover.
Unlike investments into production, an investment into land doesn't seem to
actually affect supply and demand in a way that will help the economy grow.

~~~
fineline
With debt to GDP ratios at all time highs around the world we do seem to have
reached (4). But money markets aren't free markets, being effectively
controlled - and distorted - by central banks. They hold interest rates low to
attempt to spur investment in productive capacity. But business investments
are motivated not only by interest rates (and labor market "flexibility") but
by perceived demand, which, in part due to aforementioned low wage growth,
stays weak. Capital and debt flows instead to bidding up asset prices.

~~~
candiodari
And in case anyone asks, the fact that lending free money to banks and
companies just causes that money to be paid out to the very rich is just a
_totally_ unrelated coincidence.

Completely unrelated.

------
jedberg
The landlords one makes the most sense. Land is not elastic. It is a limited
resource, and so it doesn't follow supply and demand. The supply in a city
never changes, only the demand does.

And building up isn't necessarily a solution -- it's exponentially more
expensive to go up, because you start needing things like elevators and full
time building engineers and so on. So going up only keeps things the same, as
the price per square foot of going up is higher, only elevating the cost of
that land.

Building out also isn't a solution, because people want to be close to the
city center or the things they go to the most. Self-driving cars may help with
this issue in the long term, but not the short term.

This blog post[0] summarizes some of the issues.

[0] [http://meetingthetwain.blogspot.com/2017/01/live-work-
commut...](http://meetingthetwain.blogspot.com/2017/01/live-work-
commute-2.html)

~~~
nostrademons
That doesn't explain the move towards larger cosmopolitan cities, though. The
economically rational thing to do if land values in, say, San Francisco or NYC
become more expensive is to _move to different cities_ , ones with abundant
land and low housing prices. Yet the predominant migration we see is the other
way, from small towns and minor cities to big metropolitan areas.

Anyone who's been in this situation could explain the reason why: because most
of the good jobs are in cities. But then answering the question of "Why are
the good jobs in cities?" brings us back to square one, where we have to
consider China, robots, monopolies, etc.

~~~
bufordsharkley
I'm reminded of Jane Jacob's statement about the economics of cities: "To seek
'causes' of poverty in this way is to enter an intellectual dead end because
poverty has no causes. Only prosperity has causes." [0]

To find that a small city that used to have a manufacturing plant is now
struggling shouldn't really be surprising―the city never really had a robust
economy, and it's hard to say that it really has a future.

Getting a functioning economy that works is really a sort of black magic―when
it happens, capture it! Our big cities are one of the surest places we see it,
so maybe the real question isn't "why are people moving towards larger
cosmopolitan cities," but "why are we making it so hard for our cities to
accommodate them?"

[0] [http://www.efficology.com/the-gift-of-
relationships/apprecia...](http://www.efficology.com/the-gift-of-
relationships/appreciating-government/455-jane-jacobs-the-economy-of-cities)

------
danieltillett
I argue the reason is the threat of exapropriation has been lifted. I think we
forget in the 21st C. how scary the Russian revolution and the Great
Depression were to the owners of capital. They saw that if they didn't give
labor a greater share of production they could be strung up.

Their solution was to buy off labor with democratic socialism, and then once
the threat of exapropriation had past (1970s), claw back the capital. They
neutralised the threat of labor ever being a threat again by identifying the
potential leaders and co-opting them into the upper-middle classes via
universal education and scholarships for the very talented - they wanted to
make sure there was no risk of another Lenin arising.

All in all it has been a brilliant play, but we should not forget the rich
have been advised by the best and brightest for sometime now.

~~~
bufordsharkley
There's a great amount of truth to this; anyway, it's essentially what Michael
Kalecki argued in 1943 in his "Political Aspects of Full Employment".

Anyway, I find it unfortunate that the most frightening reform in the face of
the rentier class is Marxism-Leninism, a system that simply doesn't work. It
honestly seems strange that the radical proposals of Henry George (and his
Land Value Tax[1] that would confiscate all rents) aren't used anymore to
challenge this class.

Last time Georgism infused economic reform, we had the age of trust-busting
and worker protections. I hope I'm not dreaming when I think this could
return.

[0]
[http://delong.typepad.com/kalecki43.pdf](http://delong.typepad.com/kalecki43.pdf)

[1]
[https://en.wikipedia.org/wiki/Land_value_tax](https://en.wikipedia.org/wiki/Land_value_tax)

~~~
danieltillett
Marxism-Leninism might not work as a mechanism for efficient production, but
it is mighty effective in exapropriating the rich.

One thing I have thought about recently is that with better ML if it would be
possible today to model the economy well enough to now make Marxism work in
practice. The soviets tried in the 1960s using linear algebra, but their
models were not practicable. At some point it should be possible to model the
economy well enough that capitalism is no longer the only viable alternative.

~~~
bufordsharkley
Hell, it's easy to imagine that machine learning could do it.

But like any man-made system, how do we guarantee that the system isn't
trained on inputs that generate bias? For in a large economy, bias in
allocation is a form of human suffering, large or small.

~~~
danieltillett
I am sure there would be bias - the question is would it be any worse than the
serious bias inherent now. Anyway it is just a thought I found interesting :)

~~~
bufordsharkley
It's very interesting. I'd worry most about one thing: that the free
enterprise system is inherently flexible, and will allow for new inputs its
"designers" never considered.

It'd be a very poor outcome for a neural network that it refuses to consider a
new industry that it wasn't trained on... imagine a network trained in the
1950s introduced to the technology of today. (Though perhaps a different way
of framing things would let this fall away.)

In general, a market of prices is a useful system for measuring how much
people want things. Without a price system, we'd need some new way to measure
this...

------
metaphorm
what mystery? pay raises haven't kept up with productivity increases. there's
also kinds of macro-econ handwaiving that will attempt to drill down into this
issue but at a fundamental level worker pay is at the discretion of their
managers. the problem is the management culture that distributes profits with
extreme preference to shareholders and almost no regard at all for the
workers.

~~~
kesselvon
This is it. Rewards have largely gone to the upper echelons of the management
tree. With globalization and automation suppressing wage growth for the
majority of the population. This is why we're seeing all of the money go
towards fields that: a. can't be automated and b. can't be outsourced

This is also by design, as this was the Reaganite answer to the stagflation of
the 70s and a reversal of the income distribution that was forcibly enacted by
the New Deal.

~~~
BoiledCabbage
The default nature of society is are rich and poor. There is by default no
middle class. It has essentially always been this way in society. This is
because capital accumulates, and rent seeking will always scale better than
labor.

America had the prosperity of the 20th century due to explicit programs to
create a middle class. Beginning immediately following the 1929 stock market
crash with the New Deal, and through the social welfare programs of the 40s of
the GI bill and mortgage lending we intentionally created a middle class and
society prospered.

If we as society want a middle class we need to create it. In action will
remove it as things fall back to historical normal, and actively working
against activities that build and support the middle class (like destroying
unions) will end it faster.

The other issue is the difference between short term and long term economic
efficiency. Optimizing for capitol over labor will almost always provide more
short term efficiency. Adding more cheap labor will almost always increase
profits. But longer term our society will be always be better off if a larger
percentage of our population can be educated, and financially stable enough
for invention and improve productivity through technological innovation.

The more people who can have an idea and join the capital class, the more
efficient our economy will be. A middle class is exactly what provides this.

Long term economic productivity is dependent on a middle class. Look back
throughout human history, times of huge social and technological innovation
almost always follow a sudden increase in free time for the average person (ie
time beyond the work needed for survival).

------
AndrewKemendo
This debate unfortunately lends itself to the Fallacy of the Single Cause [1].
I think this article goes a long way to implicitly argue for a multi-cause
reason for the problem of uneven GDP distribution.

The global economy is a complex dynamic system, and doesn't lend itself to
accurate modeling. So finding cause and effect is an impossible game -
especially a single one.

[1]
[https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause](https://en.wikipedia.org/wiki/Fallacy_of_the_single_cause)

------
nabla9
>Economists are very worried about the decline in labor’s share of U.S.
national income.

This is not U.S. centric problem at all. Labour share has been in decline in
all OECD countries since 70's.

------
dalbasal
I think that the honest answer is currently we don't know for sure.

Pickety's argument amounts to (IMO) that this is the mature state of our
current system. Capital generally grows faster than labour and (if it isn't
spent), accumulates over time. I think he also implies that it's brought on
(or exasperated by) prolonged peace.

One of many ideas... "Capital" is defined (often explicitly) primarily by it's
income generating potential. The iconic economist's definition of capital is
factories, but most capital today is almost entirely abstract. Companies are
some IP, but mostly it's just people. Contracts with people, cultures of
people.. Banks are neither. Banks are mostly capital and contracts relating to
capital. What does destruction of capital even mean today?

I Krugman's point is tautological. If capital s big relative to labour in a
company, that company is by definition labour intensive. "Capital" in modern
times just means the amount of income that capital generates. Thinking in
terms of factories is (IMO) just wrong if the economy isn't mostly factories.

In any case, I don't think we know what's going on with any useful degree of
certainty.

~~~
bufordsharkley
> Pickety's argument amounts to (IMO) that this is the mature state of our
> current system. Capital generally grows faster than labour and (if it isn't
> spent), accumulates over time.

From the article:

> Then there’s the idea that landowners, not corporate overlords, are taking
> money away from workers. While analyzing the work of French economist Thomas
> Piketty, Matt Rognlie found that national income accounts showed an
> increasing amount flowing to owners of land.

It's worth noting that in Rognlie's analysis, once we take away the effects of
land, the return to capital _ceases_ to outpace production.

Anyway, as far as explaining the non-productive forms of capital we have so
much of today―I'd simply conclude that they're not capital at all... Henry
George's definition of capital, for instance, excludes them―he made a (IMO
very neat) distinction between "Value from Production" and "Value from
Obligation"[0] that is a very useful way for considering things. In time,
things like "GDP" cease to seem very accurate or meaningful.

[0] [http://schalkenbach.org/henry-george/science-of-political-
ec...](http://schalkenbach.org/henry-george/science-of-political-
economy/spe214.html)

------
VikingCoder
We discovered that we were more efficient if we divided labor.

There was a short supply of people able to do some labor, but demand was high,
so wages were high.

We've succeeded at that so wildly, and automated so much of our lives, that we
have bountiful free time to train to be successful in modern jobs.

...while there is some specialization in modern jobs, there's a lot of jobs
that are NOT THAT SPECIAL. So the pool of people who would be capable of doing
them with no or a small amount of training is HUGE.

So wages are low.

There's no magic here, folks.

Meanwhile, Capital has chased not just profits, but OWNERSHIP of profit-
generating entities. Rents, right? And they've been wildly successful at it.

------
chrismealy
1) Unions were crushed. 2) Fed induces a recession whenever wages grow (that's
what inflation targeting literally means).

If you read about the power labor had between WW2 and the 1970s it's so alien,
it's like science fiction.

~~~
cm2187
Technology and the economic emergence of formerly third world countries has
done more against labor in the US than the fed and the lack of unions.

~~~
chrismealy
The plutocrats who spent forty years trying to crush the labor movement didn't
think so. Foreign workers didn't cause the Volcker shock.

------
foxyv
The problem is that money is being redistributed from the middle class to the
wealthy by mechanisms of our financial system.

High taxes on labor both reduce wages and cut spending power of working
Americans. Then, the money that is removed from the economy by income taxes is
then re-created by the federal reserve system and lent out to banks at
extremely low interest rates. This money is then lent as consumer credit which
redirects wealth to those who own capital in the form of interest.

Essentially Americans are forced to borrow their own money to survive until
they can no longer borrow and go bankrupt. The solution is easily executed and
within the power of congress or even the president. Reduce taxes to create a
deficit then offset it with higher interest rates on corporate credit. Then
nationalize the dividends paid out by the Fed to other banks to offset the
deficit even more and start charging banks for services they receive through
the Fed.

Right now we essentially have a giant welfare system for banks in America that
is slowly turning non-capital owning Americans into paupers through constant
inflation and wage stagnation.

------
stevenwoo
The topmost comment (for me right now) says income levels for workers were
flat while corporate profits were skyrocketing based on data from an article
in 2011.

~~~
bufordsharkley
Which isn't really an alternate hypothesis from the four discussed in the
piece:

> Economists are therefore scrambling to explain the change. There are, by my
> count, now four main potential explanations for the mysterious slide in
> labor's share. These are: 1) China, 2) robots, 3) monopolies and 4)
> landlords.

...but rather an effect. (Labor's return is declining, so of course a greater
share goes to corporations.)

~~~
simonh
Specifically, to capital intensive corporations.

~~~
ThrustVectoring
Intensification in general is a good enough explanation. Straightforward
economic operations get replaced with complex ones, providing more places to
siphon off output. I mean, labor's share in a hunter-gatherer society was
100%. There's little a capitalist can do to grab a share of the nuts picked up
off the ground and eaten. There's a lot folks can do to grab a share of the
logistics involved in mechanized farming of large plots of land and shipping
the produce to local markets.

~~~
bufordsharkley
An open question is how much the transition to the "knowledge economy" is
changing how we work, and how we build our communities. Communities built
solely around manufacturing are suffering today, while we see soaring demand
for our dense urban areas (which they struggle to keep up with). This can be
seen as the next progression from hunter gatherer, to agricultural, to
manufacturing-centered cities.

Should we expect this to continue, or will the knowledge economy come to
smaller cities, too? Will VR and telecommuting affect this trend?

~~~
killjoywashere
> Should we expect this to continue

I think the answer is self-evident: the inland cites are undergoing apoptosis
by way of opioid suicides and migration to the coasts as inland economic
nutrients dwindle away.

Building new cities on the coasts of Africa might be the best way to go.

------
kristianp
Apple is an interesting example of large company that is extremely labor
efficient. I imagine Exxon would be another one.

With productivity falling in the last 10 years [1], companies that are labor
intensive can't grow as quickly those that can grow faster by automating their
production.
[https://www.bls.gov/lpc/prodybar.htm](https://www.bls.gov/lpc/prodybar.htm)

------
red_hairing
no comments here about diversity and immigration increasing just as labor's
share of GDP decreased?

~~~
tptacek
If you read the site guidelines and follow Dan and Scott's comments (you can
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