Kbg wrote: ↑Wed Sep 07, 2022 9:05 am
Excellent response D1984, seriously. I always enjoy informed, well articulated push back to anything I write. It's how we learn/expand our knowledge base.
Won't argue with the basic premise of what you wrote...at the end of the day we simply recovered to the early 70s with the data I showed. I also agree that a huge part of "maintaining" is dual income couples.
Counterpoints...
Since the early 1990s (3 decades now) things have improved under both parties. So as they say, it's all relative (to the starting point). I never give either party much credit or discredit for economic conditions. The economy is way more complex than politicians are capable of effectively managing (or mismanaging) assuming decent rule of law and respect for property rights. (I know, tons of assumptions packed in there.)
My personal take on all of this however is: The decline/treading water of American wages since ~ the mid 80s is by and large a result of the rise of China and off shoring of jobs to cheaper manufacturing locations (e.g. globalization). The China thing is reversing I believe due to lessons learned from supply chain disruption (minor factor) and the cresting/soon to be decline in Chinese population (major factor). Less well known is the same thing is happening in India though not as extreme due to not having a one child policy. In the US the boomers are rapidly exiting the workforce. In sum, a lot of forces in play that suggest workers are going to have quite a bit of pricing power going forward when the economic situation is "ok" or better. Running against this thesis is technology/automation...and I'm not informed enough to venture a guess what the impact of that might be.
I look at it like this: Saying that "things have been improving since the mid-1990s" is kind of a farce since they have barely gotten the median or average worker even with where he was by 1973. Imagine if you were running in a foot race and someone moved you back from the starting line 90 yards and (after the experience of being moved back that far was over and you could again start running forward again) you ran with all your might and were just back to the starting line by the time the race ended. Had you not been moved back to begin with, you would've been a lot farther than "just at the starting line" when the race concluded.
Or consider that if a guy goes through a nasty divorce through no fault of his own (his wife was just unhappy in the marriage and was being hypergamous and wanted to leave him for another man) and he loses virtually everything to his (now ex) wife and gets hit with hefty alimony payments on top of that. If it takes him twenty years to get back to where he started in terms of wealth and net (after paying alimony) income, then clearly it's doesn't make sense to say "
well, he's at least back to where he started, and for the last twenty years or so he has at least been moving in the right direction finances-wise, so everything is hunky dory". No, twenty years of potential economic well-being growth were taken from him, and he has every right to be damn angry and pissed off about that.
I do agree that China may have played a (small) role in what happened to the average American worker but the timeline doesn't quite fit for that to be all or even most of it. China was economically nearly nothing until at least the late 80s/early 90s....plus it didn't even get into the WTO until, what...2000? 2001? Meanwhile, the AHETPI data you posted clearly shows that average/median wages had been decreasing since the mid-1970s. Mexico and other 3rd world nations can't be the full story either; NAFTA was only signed in 1993 and by that time the period of almost continuously stagnating/falling wages from 1974-early 1996 was about played out (to be fair, while real AHETPI
did indeed increase from mid 1996 to 2021 or so it didn't increase as much as actual economic growth or productivity growth from 1996-2021 so China/Mexico/NAFTA/other forms of offshoring did probably have something to do with it but they aren't the full story by any stretch of the imagination).
Several other factors that IMO bear much of the actual lion's share of the reason for wage stagnation vs what wages potentially could've been if they tracked actual productivity and economic output:
1. Corporate income tax cuts, capital gains tax cuts, dividend tax cuts, and regular ordinary income tax cuts that made it more attractive (after tax) to squeeze/outsource/downsize workers, pay them as little as possible, freeze pensions, break unions, cut benefits, hire temps rather than permanent workers, move production to whatever country is cheapest, ignore labor laws, anti-collusion laws, and environmental laws, strip companies of assets like some private equity companies do, etc. If you are a CEO and your compensation is partly/mostly based on your company's profitability, you will have a lot less incentive to try to raise profits "by any means necessary whether fair or foul" when the govt takes 46% to 52% of your company's profits in taxes, and then after that any dividends are taxed at 70 to 90%, and when your own pay is taxed at between 50 and 90% (these being tax rates that prevailed from the 50s through the 70s on high incomes and on corporate profits). To add insult to injury, all the economic growth miracle promises of these supposed "supply-side economics" and "trickle down" tax cuts didn't even really pan out; average annual productivity growth from the mid-1970s to today was actually lower than it was from the 1940s to the early or mid 1970s.
2. Unions becoming less and less powerful and less people being represented by them as--from the mid 70s onward--the government and NLRB turned more and more of a blind eye to union busting tactics by companies.
3. The government failing to raise the minimum wage from the late 1960s/early 1970s onward such that it kept pace with actual productivity like it had from the late 1930s to 1968-69 or so; if it had kept up with productivity it would be around $23 an hour today.
4. The rise and primacy of the "shareholder value" doctrine that held the companies only had obligations to their shareholders and if it benefited shareholders (and for that matter top executives whose pay was linked to profitability/earnings/share prices) then everyone else be damned. Other stakeholders (workers, their families, consumers, communities the company had factories in, the state and Federal government, the interests of the nation as a whole, etc) essentially didn't matter one bit; shareholders uber alles and let the devil take everyone else. If you look at (for example) GE's annual reports from the 1950s, some of them bragged about how much they paid in taxes and how much they paid their workers. Try and find the like from any major company today in its annual report.
5. Rising inequality within the labor sector itself (i.e. within income that neither went to corporate profits, interest payments, or rents for land/buildings); CEOs typically earned around 20-25 times what their lowest paid workers earned in the late 1960s; it has since increased to around 325-330 times today. if you look at actual overall
average wages (i.e. take the money paid to every worker in the US and divide it by the total number of workers to get an average) you will find that while it hasn't grown quite as fast as economic growth per capita or productivity growth it has shown nowhere near the stagnation that AHETPI or median wages have.
6. Health care costs squeezing out economic gains (from increasing productivity) that could've been paid instead as wages; this didn't have to happen but it did happen (largely thanks to our system being uniquely unable to impose pricing controls due to its heavily free market nature and lack of any central regulatory authority overall); around the late 70s/early 80s America's health care system began soaring in costs vs those of other comparable OECD nations without much if any commensurate increase in health statistics or life expectancy vs them.
7. Finally, last but not least, the fact that--despite inflation being mostly slayed by the early 1980s--the Fed kept rates rather higher than it likely should have if it equally valued "full employment" vs "price stability"; this led to an economy operating somewhat under potential--and at less close to full employment than was possible--which in turn increased unemployment (the unemployment rates from 1982 to mid-1996 was not even once below 5%--and in fact was in the mid to high single digits much of this time--much less at the 3.4 to 3.8% range it was in the late 1960s), which that in turn reduced worker bargaining power to demand higher wages (i.e. it's hard to threaten to quit if you don't get higher pay if you know that when you quit it'll be difficult to find another job and also if you know that you leaving is no real threat to your employer because there are two or three unemployed people who would be desperate to have your job for any wage just to get a paycheck).
As to whether things will get better for average working Americans if we re-shore a good bit of manufacturing from China and as Boomers exit the workforce....well, I hope so but I think increasing automation will somewhat blunt the effects of the former and the Fed keeping the economy below full potential (and thus worker bargaining power lower than it could've been, and thus workers' ability to claim a larger share of the national income lower than it could've been) if they always insist on raising rates too aggressively to try and stem inflation (yeah, inflation is bad but there are almost certainly better ways to control inflation from a macroeconomic perspective than simply raising rates as the only option) that might happen as--when/if Boomers start retiring en masse--more jobs are chasing after a smaller pool of available workers...well, I don't hold out a bunch of hope for the latter either. I'd love to be wrong on this, though.