Today’s NYT has an article on Inflation, Wages, Income and Corporate Profits.
We first started running a chart depicting the same issue way back in May 2004, and have featured it several times since.
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Selected Component Shares of National Income
click for larger graphic
Graphic via St. Louis Fed
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Here is a quick excerpt:
In the first quarter of 2006, wages and salaries represented 45 percent of gross
domestic product, down from almost 50 percent in the first quarter of 2001 and a
record 53.6 percent in the first quarter of 1970, according to the Commerce
Department. Each percentage point now equals about $132 billion.Total employee compensation — wages plus benefits — has fared a little
better. Its share was briefly lower than its current level of 56.1 percent in
the mid-1990’s and otherwise has not been so low since 1966.Over the last year, the value of employee benefits has risen only 3.4
percent, while inflation has exceeded 4 percent, according to the Labor
Department.In 2004, the top 1 percent of earners — a group that includes many chief
executives — received 11.2 percent of all wage income, up from 8.7 percent a
decade earlier and less than 6 percent three decades ago, according to Emmanuel
Saez and Thomas Piketty, economists who analyzed the tax data."
Here’s some of our prior discussions during the last few years:
• Disposable Personal Income as a % of GDP
• Expansion Leaving Workers, Income Behind
• The Disconnect and Economic Classes
Sources:
Real Wages Fail to Match a Rise in Productivity
STEVEN GREENHOUSE and DAVID LEONHARDT
NYT, August 28, 2006
http://www.nytimes.com/2006/08/28/business/28wages.html
The Seasonal Cycle and the Business Cycle
St Louis Fed
July 2006
http://research.stlouisfed.org/publications/net/20060701/net_20060720.pdf
A slim majority of Americans (which is enough) have knowingly or unknowingly supported policies which give a disproportionate share of the windfall from an unpredented combination of global trade and high technology (developed over generations) to corporations and to the top 2% of folks who own 50% of the shares.
What’s the phrase “Never was so much owed by so many to so few”? This is “Never was so much given by so many to so few”. We even give them tax breaks in a time of war while some of those in the “economic draft” give their lives.
And where did that investment go? Mine went to create jobs in India and China via EM equity funds. I’m sure I was not alone. So, those tax breaks didn’t even create jobs in this country. On top of that, the imbalance in the budget and the likelihood of currency depreciation is, IMO, an unsung reason for the rise in prices of long-dated oil contracts. (Who wants dollars? I’d rather own future oil production.) And that inflation hurts who the most? Inflation on the things we need to live is regressive.
Regular folks are getting screwed, whether they know it or not.
As productivity per worker increases, global arbitrage expands the available pool of skilled workers, and US companies can depend more on a global market place and businesses vs. consumers as customers, I see an economic bifrucation between the individual/consumer economy and the corporate economy.
Corporations are separating in to seprate strata that is increasingly becoming self sufficient. The average worker or consumer is becoming marginalized, except for those with the very highest non-comoditized skills that are still vital to corporate operation.
Perhaps we are in the beginning of a phase change where business goes from being a tool for societal progress and the enhancement of the individual, to being an autonomous system of it’s on concerns and objectives where the individual is merely an agent or environmental factor.
Two different worlds… two different economies.
What a bunch of sanctimonious hot air. The phrase “Never have so…” is a wartime phrase expressing graditude to the ENLISTED soldiers for the sacrifices they made to ensure our freedoms. How many of your readers will volentarily forgo a small percentage of salaries or actualy work to help out the downtrodden minimum wage workers. We are all doing better(especially those who doodle on blogs), over the last few years. The quality of my problems keeps improving.
per Tom in Indy:
“What a bunch of sanctimonious hot air. The phrase “Never have so…” is a wartime phrase expressing graditude to the ENLISTED soldiers for the sacrifices they made to ensure our freedoms.”
Jeeezus, if you are going to rant about quotations, at least have some idea of what you are talking about. The quote is from Winston Churchill in 1940 and referred to RAF fighter pilots during the Battle of Britain, most of whom held the rank of Pilot Officer and none of whom were the common dogfaces that you imply:
“The gratitude of every home in our Island, in our Empire, and indeed throughout the world, except in the abodes of the guilty, goes out to the British airmen who, undaunted by odds, unwearied in their constant challenge and mortal danger, are turning the tide of the World War by their prowess and by their devotion. Never in the field of human conflict was so much owed by so many to so few. All hearts go out to the fighter pilots, whose brilliant actions we see with our own eyes day after day…”
Brave? Yup. Downtrodden jerks? No, these jobs went to the pretty boys same as in WWI, the minimum wage jerks were the ones pulled off of the beach at Dunkirk.
Next time, check things out before arching up in righteous indignation.
This is brilliant: from the FT
BoE chief economist hits at US inflation measure
The US Federal Reserve is wrong to focus on core measures of inflation that exclude energy prices, Charles Bean, chief economist at the Bank of England, has suggested.
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It should focus instead on headline inflation, which is much higher, he argued. Including energy and food costs, US consumer price inflation is running at an annual rate of 4.1 per cent, against 2.7 per cent for core inflation.
Mr Bean told the Fed’s annual Jackson Hole symposium at the weekend that energy prices were rising for the same reason the price of many manufactured goods were falling: the rise of China and other emerging market economies. Since both price trends had a common cause, he said it makes little sense to focus “on measures of core inflation that strip out energy prices while not stripping out falling goods prices as well.”
We get it. You are always first when it comes to reporting the trends. That is your job as an economist/money manager. You analyze and invest accordingly. If you did anything less, you would not be doing your job.
The media has one job — to report the news and inflame the reader (that is usually obvious by the time it is reported). The goal — sell newspapers/magazines. With few exceptions, that will always be the case.
does any of this matter as the federal reserve and its PPT just pin the market up ? there is a huge wonder right now how the market is hanging out at near the years highs. everything points to a declining market. the market will NEVER go down.
For one thing it matters greatly as to stock picking. It means that the Buffett long term strategy of picking blue chip stocks who sell mass market branded products to the increasingly prosperous middle class, which has worked well in the 1950-1990 period, is effectively dead; because the middle class is increasingly less prosperous. Thus the rise and rise of Wal*Mart and generic, low quality, cheap chinese suppliers.
It matters also for another reason: the «the federal reserve and its PPT just pin the market up» only so far. This strategy is highly inflationary of course, and indeed there has been high inflation in the asset markets (which is the primary objective of that policy) and in China and India, to which jobs and growth have been exported.
But there are signs that the large spare capacity that China and India have added to the USA trading and production system is being sued up, and inflation (and some modest growth) is spilling back to the USA, mainly via commodity prices.
At this point the question is whether the interests that have benefited from this policy are prepared to call a day and count the already large blessings they have accumulated, or they want to accumulate some more, and damn inflation.
What Would Bernanke Do? :-)
thanks Blissex for the qucik reply.
i don’t know why anyone would cite the NYT. they have lost all credibility. likewise reuters.
First rule of organizational theory: the #1 goal of members is for the organization to persist.
What organization does an individual economist belong to? The U.S. Government/current administration, “Wall Street” or the “People”.
An economist that is a member of the organization of “people” worries about that divergence between personal income and corporate income. AND, if the gap gets too big, all of the economists better start worrying, because if the status quo becomes untenable, some of those economists just might find themselves defenestrated as their organizations become obsolete.
p.s. if you are unfamiliar with defenestration, please google it, a very fun word.
I stand corrected. Thank you whipsaw. It still was a bunch of BS though…Just a observation, You didn’t take off the head of wunsacon and he was on a rant also. Hmmm.
I must add this: but because of the Greenspan Put those stocks are not dead yet. I’ll recycle some of my favourite quotes and links:
http:/WWW.beearly.com/pdfFiles/PIMCO092005.pdf
http://WWW.PIMCO.com/LeftNav/Late+Breaking+Commentary/FF/2005/FF+September+2005.htm
«[6] I attempted to put a value on the Greenspan Put in the February 2000 Fed Focus, “Me and Morgan le Fay”, writing that without the Put, the P/E for the S+P 500 should be 18, not 32.»
and look at these (already mentioned) old and new blue chips long term:
http://finance.Yahoo.com/q/bc?t=my&l=off&z=l&q=l&s=CSCO
http://finance.Yahoo.com/q/bc?t=my&l=off&z=l&q=l&s=IBM
http://finance.Yahoo.com/q/bc?t=my&l=off&z=l&q=l&s=JNJ
http://finance.Yahoo.com/q/bc?t=my&l=off&z=l&q=l&s=PG
Scary stuff…
great post by wnsrfr
economists, especially NYT ones, have agendas too