‘We were shocked’: RAND study uncovers income shift to the top% (cont)

Money creation favors people closer to the the printer. People that can take a loan at 2% - which are generally wealthy people already. In the meantime working class has to compete with cheaper labor from poorer countries, while the capital owning class is pocketing the difference and enjoys cheaper goods.

Before capital owners had to pay a decent wage to workers in USA. The products made in US were more expensive, but the workers were compensated well so generally could afford it.

Now manufactured goods are cheaper, so people can still afford TVs and phones, but their purchasing power is lower in respect to things like services, housing.

This BTW. benefits software engineers that can plug themselves into high margin, low-labor operating capital, enjoy higher wages and rather easily join the capital class themselves.

Fundamentally labor increases profits linearly and capital increases profits exponentially. Without something to bridge the gap, exponential function will always eventually overtake the linear one. This happened many times before, and unfortunately the bridging was usually very destructive (wars & revolutions).

>...even he was surprised by RAND’s findings. In fact, he says that before the report was completed, he had done his own “back-of-the-envelope math” and wound up underestimating by a good 40% the degree to which workers’ incomes have failed to keep pace with GDP. “It’s startling,” he says...

...except this [0] graph has been floating around for years, and the 40% failure to keep pace is visible plain as day on it. I'm glad there's more comprehensive research about it, but come on - this isn't even remotely groundbreaking. You'd basically have to be living under a rock for any of this to come as a surprise. There were even protests about it a few years back - what were they called? "Occupy Main Street" or something?

[0] https://i.redd.it/szwd5045fzl51.png

The total income of the top 1% is $2 trillion: https://taxfoundation.org/summary-latest-federal-income-tax-...

Meanwhile, there are 130 million full time workers: https://www.statista.com/statistics/192356/number-of-full-ti...

The chart in the middle shows that top 1% incomes would drop by half in the counter-factual scenario. If you redistribute that to 130 million full-time workers, that adds $7,650 per worker across the board. So how can you get $30,000 more at the 25th percentile and $40,000 more at the median?

The basic problem seems to be that the study assumes that taxable income should scale with per capita gdp growth. But it ignores that there are a bunch of other things in GDP besides personal income, and the proportions of each component can change over time: http://lmi.mt.gov/Portals/193/xBlog/uploads/2016/10/26/GDPvs...

There are a lot of things included in GDP that are not taxable personal income: social security contributions, net government transfers, etc. The RAND study looks at just taxable personal income. So if nothing else changes other than the fact that the government prints a bunch of money to pay for welfare benefits, or if the income from rents skyrockets, or if benefits grow faster than wages, or if corporate profits sit undistributed (all of which are true) the share of total GDP going to median income earners will go down. (Note they do include investment income and distributed corporate profits.)

The study’s problem isn’t methodology, per say. It’s overlooking that there are other things in GDP besides taxable income to the bottom 99% versus the top 1%. The article draws the conclusion that reductions in the percentage of the economy going to the median earner means that they instead went to the top 1%. Obviously that’s false because the money could go somewhere else. Under the RAND model, both shares could even go down, because a larger share of the economy is comprised of GDP components that aren’t taxable personal income.

Unfortunately this study, if Fast Company's clickbait article bears at all on the actual research, is not part of that canon.

The phenomenon that the study talks about, rising productivity with stagnating wages for the great majority of people since about 1975, has been discussed at length in academic economics for at least the past decade.

In the early days, of course, there were the usual attempts to say "nothing to see here": faulty methodology (no), confounders (yes, mainly a bigger percentage of women in the workforce, but adjusted for), it's a business cycle effect and will correct itself, there's no such thing as income/it's too hard to measure precisely, but-but-but "stable income shares" is one of the great Kaldor's stylized facts, blah blah blah.

The objections got increasingly more feeble and desperate as time went on, you will note.

TLDR: RAND has discovered something everyone else has known for decades.