The Wage-Productivity Gap
The most damaging factor to our economy today is the Wage-Productivity gap. This refers to the increase in the hourly output of workers vs. the increase in hourly pay. This concept is described quite well in Chapter 6 of economist Ravi Batra's book, "Greenspan's Fraud."
During times of true economic prosperity, wages have kept pace with productivity increases. Workers have shared in the benefits of their increased productivity. The result is that wages remained sufficient to purchase our nation's industrial output. Borrowing, or debt-financed consumer spending, was unnecessary to maintain sufficient consumer spending to purchase our production. More production can be purchased because more wages are paid. Demand, created by wages, matches supply, which is created by productivity. This creates a balance that makes massive borrowing unnecessary. And such balance maximizes economic "growth."
This balance has not been maintained, however, during recent years. It has worsened greatly under the Bush administration. Productivity has increased significantly during the Bush years. In contrast, wages have actually decreased. This trend started before Bush took office, but I'll confine the time frame to December 2001 through March of 2005. These are years for which records are readily available from the U.S. Bureau of Labor Statistics. Below is a graph from the New York Times showing how productivity is outpacing wages
Starting in January of 2003, productivity (or output per hour) has increased 11.2% thru the 1st quarter of 2005. In contrast, hourly wages have declined 2.3% over the same time period, from an inflation-adjusted $8.32/hour in January, 2003, to $8.13/hour in June, 2005. Production has exceeded the ability of wage earners to purchase the production by 13.5%. This gap has been filled by consumer borrowing. The amount borrowed must steadily increase, in order to keep pace with our increasing industrial production. If it did not, our economy would sink into recession. However, maintaining demand through borrowing is not a sustainable path.
Statistics on Hourly Wages can be found at: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0500000049
Statistics on U.S. Productivity can be found at: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=PRS85006092
Sometimes the effect of the wage-productivity gap can be seen better from a distance. An example of the effect of the wage-productivity gap can be seen with Japan's economy. Again, this was described by economist Ravi Batra in Chapter 6 of his book, "Greenspan's Fraud." Dr. Batra makes a very compelling case that Japan's economic problems resulted from the increasing gap between Japanese wages and productivity. I will paraphrase his explanation here.
Japan experienced extremely rapid growth between 1960 and 1975. During that time there was a 168% increase in per capita GDP. Their per capita GDP increased from $2,139 in 1960 to $5,750 in 1975. Real wages increased 217% during that time. Manufacturing productivity increased 264% during these 15 years. Japan prospered and its economy grew during this period because wages, which create demand, kept up with productivity, which creates supply. There was sufficient WAGE-FINANCED demand to stimulate production. And the necessary demand was maintained by consumer income, not consumer borrowing.
After 1975, productivity growth began to outpace wage growth. The result was a much slower growth in GDP. Between 1975 and 1990, productivity increased 3% more than wages per year. During that period, wages increased 27%, while productivity increased 86%. The per capita GDP increase was 64% from 1975 to 1990. Less of the wealth produced by Japanese workers was being shared with them. As a result, business profits soared, increasing money available for investment. This caused Japanese investors to over-invest in both the stock market and housing. Japanese stock markets and real estate values soared as a result of this over-investment. Meanwhile, there was insufficient wage-financed demand to keep up with this capital investment.This necessitated increased levels of borrowing to maintain the demand that wages could not maintain.
By 1990 there was a huge Japanese stock market bubble and real estate bubble. And in 1990 this overvaluation all came crashing down. The Japanese economy has still not recovered 15 years later. By 2003, the Japanese stock market was still 80% below its peak in 1990. From 1990 thru 2002, per capita GDP increased 13%. Compare that with the 168% increase between 1960 and 1975. Compare this latter 15-year increase with the 59% increase during the 27 years from 1975 to 2002. Japan's per capita GDP increased 3 times as much during the 15 years prior to 1975, than it did during the 27 years after 1975. The pre-1975 rate of increase was 5 times faster than the post-1975 increase.
What caused this slowdown? The rise in the wage-productivity gap. Worker income that could have been put to good use buying Japanese goods was siphoned off as corporate profits. Since the benefits of investment capital are limited by consumer demand, the result was over-investment of Japanese stock and housing markets, and maintenance of consumer demand by borrowing.
Does this situation describe any other economy you can think of?
This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news
Eurovision Song Contest - Kiss My Butt Neighbours
Tonight I resigned myself to the fact that this is the last Eurovision Song Contest I shall ever watch. In fairness the only reason I did watch it was due to media reports mentioning that steps had been taken to try and mitigate the blatant vote rigging that takes place each time the contest is aired.
Army recovers terrorists' bodies from avalanche-hit areas in South Kashmir
As the death toll in the avalanche-hit Jammu and Kashmir is increasing day by day, the security forces have recovered the bodies of few terrorists who had taken shelter in the foothills of Pir Panjal mountain ranges to escape the clutches of security forces. Little did these terrorists know that they wouldn't be able to escape Nature's fury even if they hide from the army.
TABOR: The Growing Taxpayer Bill of Rights Movement and Economic Incentives for Industry
A governing.com report blast one of the major grassroots initiatives spreading across the country: the Taxpayer Bill of Rights (TABOR) movement.
John Kerry as a Prosecutor?
Prosecutors with political ambitions are known to modify the truth or withhold evidence in order to get a conviction. It is so common in fact that the greater the political ambitions the greater the unethical ness of their tenure as a prosecutor.
Franchising Democracy and Creating Cohesive World Government
There are so many problems with our perceived perfect checks and balances system of our government, that one cannot use the exact United States version model of government to create a franchise agreement for future governments of the world. A standardized system of government in all countries of the World needs to exist if we are all to live peacefully on the planet, trade and respect each others cultural heritage and tolerate the many different renditions of World Religion.
If the Water is Polluted, Ever Wonder What is in it?
I would like to discuss a few issues we have been reading in the mass media about the kinds of stuff in our rivers. Forget about the DDT and all the pesticides from Industry, we need to look at our own lives and in our own mirror.
China: Tibet Standoff
The People's Liberation Army of China invaded Tibet in 1949. Since then each Tibetan has a many a tale of oppression, forced occupancy and violation of fundamental rights to narrate.
Immigration: Ten Points to Ponder
1. Why is it that no one seems to notice, much less ever mention, that the World Bank and the IMF have implemented economic measures that have left large sections of their populations unemployed and destitute? (The illegals are not doing this, you see, but this population is easier to attack and is more defenseless than the World Bank and the IMF.
FTC Franchise Disclosure Law Invites Violations; Do Not Call Lists
The Federal trade Commission has a rule, which says that each potential franchise buyer must receive a uniform franchise offering circular. There are various things in the UFOC one of which is a complete listing of the names, addresses and phone numbers of all the franchisees in the system.
How to Tell When Government Regulators are Shopping You
In this day and age of tattletale, whistleblower heroes and homosexual bureaucrats with an axe to grind, we often find government regulators calling up business people to try to entrap them. As a matter of fact one worthless agency called the FTC - Federal Trade Commission will often call up Biz Op companies and attempt to get them to say something they shouldn't.
The Route to Democracy
Fifteen hours is a tremendous barrier. It is the obstacle preventing one village from attaining the assistance of another and surviving a drought.
The Dawn On The Nile Valley Has Secrets To Tell!
Amnesty International comments on the proposal that has been laid out by President Obasnjo the Chairman of the African Union in regards to the Sudanese Darfurian issue.The Nigerian President proposed to have an "African Panel for Criminal Justice and Reconciliation" to deal with the crimes committed by the dictatorial regime in Sudan.
Failure to Supervise at the Federal Trade Commission
Many MLM sales people mean well but they inadvertently commit fraud and violate rules and laws in their presentations. This is unfortunate and is an issue too big for the Federal Trade Commission to handle, like SPAM or Identity Theft; the FTC is impotent.
Mommas, Dont Let Your Babies Grow Up to Be Lobbyists
For many years now, I have been the proud holder of jobs that my parents found very difficult to explain to their friends. Now, when a well-meaning acquaintance asks "what does your daughter do?" they try to explain that I help people understand how to communicate with elected officials.
Pierre Dupont de Nemours
After arranging the Armistice that ended or settled outstanding issues after the Revolutionary War Pierre Dupont de Nemours came to join the Royals including the Hapsburgs who were living near Jefferson and other esoteric Merovingians in and around Delaware. He and his family became important armaments manufacturers and it is reasonable to remember what Eisenhower said in his Military-Industrial Complex speech.
Prison Abuses on Good Muslims
Well we have certainly been reading a lot about prison abuses. Many of us in the Western World are completely outraged at the media leak of the photos at Abu-ghareeb.
Think You Dont Need A License for A Wireless Microphone? Think Again
Believe it or not, every theatre, church, or Britney Spears wannabe using a wireless microphone is supposed to have a license for it. No, I'm not making this stuff up.
Did 9-11 Change Everything for the Business Community
For the business community 9-11 changed everything. In our company, we are in the cleaning business and after 9-11 we saw 62.
Whats Right About Nebraska: How the Democrats Lost the Heart of American Populism
(Note: This article was written slightly before the 2004 election; however, its thesis on how the Dems. lost the heartland--and why they continue to fumble the ball--bespeaks of a sea change that continues to sweep the American political landscape.
Truckers Take Some Hits and Keep On Trucking
After 9-11 insurance rates on Independent Truck Drivers and smaller trucking companies showed an average increase of over 30%. Larger trucking companies are generally self insured, however incessant lawsuits have also hurt them and caused higher self insurance funds causing decreased earnings and thus higher over all shipping rates to the consumer.
|home | site map|