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If you've been reading Paul Krugman for the last few days, you know that he's latched onto the issue of the changing distribution of income between workers and owners.

He admits that he and other economists were basically blindsided by it, and I'm sure we can look forward to much fruitful discussion in the days to come. It could be one of the more important developments in economics in quite some time.

Below is a summary with some thoughts. It's pretty interesting, and a little frightening…

Apparently it was all triggered by a recent spate of articles about how companies (notably including Apple) are "re-shoring" manufacturing jobs to the U.S. Then someone pointed out that most of the work will actually be done by robots, and the number of good, new jobs for humans will be limited.

Professor Krugman got hold of the story, and his first take was "Whoa, this whole trend has gone completely under my radar—and everybody else's too." But he has the bit in his teeth now, and has pronounced this a crucial issue. Over the last few days he's published a series of blog posts on it, the latest of which is linked here (and I'm sure we can expect more). I encourage you to read the others if this interests you.

The basic story is that, since the start of the Reagan Era, the share of income going to workers—as opposed to owners—has been declining, from an average of about 65% to today's 57% (see Krugman's second chart). And lately, the decline has been accelerating.

This wasn't supposed to happen. Talented people could always improve their lot by better education. But as Krugman's first chart shows, this "college wage premium" is leveling off. So much for the tale that politicians love to tell about how education is the key to success.

Also, improvements in productivity (such as made possible by better machines) were supposed to lead to a higher standard of living for workers. We know that this hasn't held true lately, but nobody really set about trying to explain why. In an earlier post, Krugman revived an old mathematical model to show that if robots increase worker productivity enough, it can actually lead to declining wages (which is pretty much what we're seeing), with the difference going as extra profit to the people who own the robots (which is also what we're seeing).

If this all reminds you of a certain radical political philosophy that starts with "M", you're right. As one comment I read said: "Marx wasn't wrong, just early."

In any case, it looks to me like this could become the defining issue for economic arguments for the next few years. It will test the cherished beliefs of both Democrats and Republicans. (Of course, being totally wrong has never stopped Republicans: after all, they're still telling us that tax cuts pay for themselves and tax increases destroy jobs.)

There are all sorts of interesting side issues, too. For example, if wages keep going down, who's going to be able to afford to buy those great, robot-built products? (Robert Reich's signature issue) And if there simply aren't enough jobs to go around, what do we do? If the government turns into a giant redistribution apparatus, taking from capitalists and giving to the unemployed, that could lead to murderous politics and economic stagnation.

Definitely food for thought. Oh, and a belated thank-you to R. Reagan. Back when he was prez, I'd tell anybody who'd listen that it would be years before we even understood how badly his policies were screwing things up. Guess I nailed that one, eh?

I'm no economist, but it seems to me that we could be on the brink of a tectonic shift in our understanding of economic issues.

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Comment Preferences

  •  Tip Jar (3+ / 0-)
    Recommended by:
    tardis10, OIL GUY, linkage

    What is valued is practiced. What is not valued is not practiced. -- Plato

    by RobLewis on Tue Dec 11, 2012 at 10:25:22 AM PST

  •  Easily done with pressure on Boards & CEOs (1+ / 0-)
    Recommended by:
    DBunn

    ...and can be done without supposedly inflationary wage increases. Plenty of years past (e.g. 80's & '90's) there were compensation models propagated nationally to pump up bonuses (or wages in the earlier years) to a wider spread of employees. This may be the fastest and easiest way to implement a broad shift in compensation and stimulate the economy and it can even be done, and has been, without increasing the total paid in wages (i.e., without reducing ROI).

    When markets are strong (and they are) is the time to both save and implement structural changes. American businesses are saving...

    Now is a good time for the WH to champion a few years of spreading the wealth down deeper in employee ranks as private economy stimulus. Incentives can be used to pus on Boards to take action.

    Let all Bush tax cuts expire and , bring on the Sequestration cuts to defense.

    by kck on Tue Dec 11, 2012 at 10:37:35 AM PST

  •  If (0+ / 0-)
    If the government turns into a giant redistribution apparatus, taking from capitalists and giving to the unemployed, that could lead to murderous politics and economic stagnation.blockquote>

    "If.."?   I thought we were already there.

     

  •  Cost of headcount (1+ / 0-)
    Recommended by:
    Gooserock

    The healthcare issue is one of THE greatest issues that prevents people from quitting their corporate jobs and retiring early or starting their own business, and a reason companies don't want to hire new employees.

    Next to that, there are other headcount costs, costs of "onboarding", etc.

    We could reduce some of those costs to increase availability of jobs.  

    Outlaw the practice of drug testing or health examinations for hiring purposes.  These are invasive to privacy and increase hiring costs.  

    Also outlaw credit checks.  Again -- invastion of privacy and cost of hiring.

    Consider different ways of funding social security, rather than an employer match.   There are other ways we can get money out of corporations, such as a VAT tax, without making it a headcount cost.   That way, the corporation is going to pay taxes, whether it hires people or not, so not hiring Americans is not going to get you out of contributing to social security.

    Eliminate H1B's and stop subsidizing the off-shoring of jobs.

    Really, take a good hard look a every dollar that companies complain about as the cost of headcount, and find a way to change it so that it no longer perceived as an obstacle to hiring.

    •  We Don't Have a Problem Solving System of Gov't (0+ / 0-)

      at this point. The conservatives are dismantling all those capabilities and even when out of majority are strong enough to block.

      Millions of people have good policy ideas if we had a way to pass them.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Tue Dec 11, 2012 at 11:18:47 AM PST

      [ Parent ]

  •  Thank You - N/T (0+ / 0-)

    "Upward, not Northward" - Flatland, by EA Abbott

    by linkage on Tue Dec 11, 2012 at 11:03:46 AM PST

  •  Robots Have Moved Into Problem Solving (0+ / 0-)

    and since human workers only do 2 things --labor and problem solving-- there's no longer anywhere for displaced workers to go.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Tue Dec 11, 2012 at 11:17:21 AM PST

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