Comment by Animats | Hacker News Reader

Comment by Animats | Hacker News Reader

Plain HTML version without popups.[1]

This is a famous paper by John Maynard Keynes. He saw that productivity was going to increase considerably over the next two generations, but really had no clue how that would play out. Now we're there, and it's not working out like anybody back then expected.

What Keynes missed was a consequence of a trend that could be seen back then - productivity increases are concentrated in certain areas, broadly, those involving "making stuff" - manufacturing and agriculture. In Keynes's day, that was most of the work force. In the US today, 14% of the work force makes all the stuff. (Yes, imports. If the US made all its own stuff, that number would still be well under 20%).

As a result, most of the work force is in low-productivity jobs - leisure and hospitality, retail trade, and health care are the biggest categories. Because each worker in those areas produces little revenue, wages tend to be low there. With most workers in low wage, low productivity areas, wages overall are driven lower. Although manufacturing could afford to pay higher wages, they don't have to be that much higher. A new hire in an auto plant today gets about half, in real dollars, what a new hire got in 1975.

That's part of how we got to where we are today. This wasn't forseen by prominent economists.

[1] https://www.marxists.org/reference/subject/economics/keynes/...

[2] https://www.bls.gov/emp/ep_table_201.htm

> This is a famous paper by John Maynard Keynes

Indeed, and it was the starting point of the thought-provoking book How much is Enough? [1, review in 2] by noted Keynes biographer Robert Skidelsky and his son Edward, in which they advocate for more leisure, of the enlightened sort, instead of more work. It's a good read, though short on actual solutions.

One concern both Keynes and the Skidelskys had is this:

> Yet there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society.

> To judge from the behaviour and the achievements of the wealthy classes today in any quarter of the world, the outlook is very depressing!

(Keynes, 1930 (!))

Now, with the increase in inequality over the last two decades and stagnating real incomes for the bottom half, it looks like this problem will be confined to the "wealthy classes" a bit longer...

[1] https://en.wikipedia.org/wiki/How_Much_Is_Enough%3F_(book)

[2] http://www.economist.com/node/21559308

Income inequality has grown, but it is a common misconception that incomes have been stagnant. According to the St Louis Fed the issue has been:

>...Economists long have noted that focusing on AHE rather than total compensation yields an inaccurate picture of labor compensation due to the omission from AHE of employer-provided benefits.

https://files.stlouisfed.org/files/htdocs/publications/es/07...

The page has 2 charts showing the differences when you compare wages to total compensation.

Not sure that's really a relevant factor. A 2012 source I found said that from 1973 to 2011, productivity grew by 80%, but wages only 4%, and total compensation 10.7% - that's a bit more, but it's still much closer to wage growth than to productivity growth.

Annualised, that's productivity 1.55%, wage 0.1%, total comp 0.25%.

http://www.epi.org/blog/real-hourly-wage-growth-last-generat...

Those numbers conflict with the St Louis Fed, so not sure what to make of them. It is unfortunate that their source seems to be produced from the think tank itself.

"As a result, most of the work force is in low-productivity jobs"

Most of the workforce are in pointless jobs that wouldn't be there but for the obsession with the false notion that "the private sector creates jobs".

We can create all we need and grow all required with about 20% of the manpower. By definition the private sector destroys jobs with innovation and automation. That is its purpose.

The problem is that the power has shifted to corporations and away from the population since the 1970s. That power results in moribund governments and a system of oppression that ensures there are always fewer jobs available than people that want them.

A perfect system of control for a nation based upon the idea of excessive individualism, that has made it trivial to divide and conquer.

But, as the political scientist Mark Blyth puts it, the Hamptons are not a defensible position. Eventually they will come for you.

> As a result, most of the work force is in low-productivity jobs

Do we have a good understanding of how this shift of employment from high-productivity to low-productivity industries plays out? Is it even still happening? A BLS study comparing data from 2000 and 2010 found no association between an industry's change in productivity and change in employment. [1]

[1] https://www.bls.gov/spotlight/2013/productivity/ (See slide 7)

Inflation over the years as whipped out all the productivity gains.

That is not how inflation works...

"Throughout history, governments have tried to solve financial problems by simply printing more money. This can drive the value of money drastically downward, especially in modern markets where money is not backed by gold."

http://money.howstuffworks.com/question737.htm

That has nothing to do with gains in productivity. If you produce ten times the value you did ten years ago, that fact is unaffected by the nominal dollar equivalent you make. Inflation - in your quote, of fiat currency - devalues stores of money, not stores of value, because it's a change in the relation of money to value that is strictly controlled on the money end.

" The Hidden Tax

Although inflation causes generally rising prices, it should not be understood as detrimental to all parties involved. It is highly lucrative for the government and the banking industry. When new money is printed (today, created electronically), it greatly benefits the first recipient because assimilating the new money into the economic organism takes time. Those first recipients (government and banks) can purchase goods and services at the old prices. As the money slowly works its way through the economy prices are bid up. Eventually when it reaches the salaried workers, prices have mostly adjusted. This process is a hidden tax on salaried workers, or anyone who receives the money late in the cycle. It is especially detrimental to those on fixed incomes, such as pensioners. Not only does the government understate the effects of inflation in its official numbers, any price decrease that would have occurred as a result of productivity gains are denied to the consumer as well. Inflation is nothing but wealth transfer. The government prints money and buys stuff with it. Prices rise and the salaried worker can buy less stuff. All the stuff the salaried worker could have otherwise bought has accrued to the government. Simple. Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated. "

http://austrianeco.blogspot.pt/2008/02/inflation-part-22.htm...

Quoting sources is very impressive, but you're not making a real point. People are aware of how inflation works - unless you can explain how inflation would counter productivity increases in the general shape of the economy, you're not adding anything to the conversation.

no most people don't know on inflation really works I expeculate 99% of the people don't really know or have big misconceptions on how inflation works.

"Politically, it is far more palatable than raising taxes because the process is badly understood and well obfuscated."

It is really self-explanatory "any price decrease that would have occurred as a result of productivity gains are denied to the consumer" trough inflation.

But we're not talking about a nominal dollar change in prices. The point was that the real wages have gone down, and that's not a direct result of inflation because you would expect workers to demand raises in line with inflation if they had the power to. Instead, manufacturing workers don't have that power.

A more detailed and technical view on inflation.

What You Should Know About Inflation.

https://mises.org/library/what-you-should-know-about-inflati...

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