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Comment by nimos | Hacker News Reader

And how much of that money is flowing into buying up residential housing now because every other asset is so inflated? Basically every index is at all time highs. The stock market more or less recovered last summer and they keep buying? WTF is the plan.

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The obvious thing that is needed is strong labor unions. The open question is why so much of this money is flowing into asset price inflation instead of either consumer inflation or higher wages, or some combination of the two. Even a 50/50 split of consumer inflation and higher wages, which might at first seem to have no benefit, would in fact have the benefit of deflating the relative debt burden that the public is carrying. There is also the very great question of why monetary stimulus was more effective at raising wages in the early and mid 20th Century. Strong labor unions must be part of the answer. The power of the unions forced more of that money to the workers, and less of it to those already holding assets. It is, of course, well known that in every Western country the percent of national income going to capital decreased in the mid 20th Century, whereas the percent of national income going to labor increased in the mid 20th Century.

An alternative, which would not require strong labor unions, would be massive final consumer spending on the part of the government: this is the spending where the government is the final consumer, which is currently only 33% of the Federal budget. A massive program of rebuilding infrastructure would help force the money into the real economy, and this would have some of the same effects as strong labor unions.

One of the key pillars of "Reaganomics" was attacking the cycle of wage-price inflation by breaking the ability of unions and workers in general to coerce higher prices from the market. The commonly-circulated graph that shows compensation splitting off from productivity in the 1970s isn't an accident, it's an intended policy outcome.

The key distinction isn't so much between "workers" and "capitalists" as between "voters for whom cashflow is critical" and "voters for whom asset income and fixed income is critical" (i.e. pensioners! A huge fraction of the voters!) Within the "cashflow" category you also have the question of whether you've paid off enough mortgage to regard house price inflation as good rather than bad, or whether you're staring up at the wall of deposit required to enter the housing market.

That's true, but keep in mind, the peak year for unionization in the USA was 1949, the Communist hysteria of 1947-1954 forced the labor unions to purge their militants, and afterwards the unions were in slow decline. And the divergence of wages versus productivity occurs in the 1970s. In other words, Reagan did not start anything, but rather, he was the final nail in the coffin of trends that had started much earlier.

There was no disconnect between productivity and compensation due to the "slow decline of unions" from 1954 to 1972

The US went off the gold standard in mid 1971, and the productivity/comp divergence starting happening in 1972.

A lot of changes to the economy can be traced to 1972.

https://www.epi.org/publication/understanding-the-historic-d...

Depending on what you consider decisive you can use 1949, 1958, or 1973 as the decisive turning point. The double recession of 1958-1960 was certainly decisive if we're looking at labor's political power. It was after that, for the first time in 70 years, that the USA began to develop a trade deficit. Please look at first chart on this page:

https://www.mckinsey.com/featured-insights/employment-and-gr...

You can see that labor begins to weaken after 1960.

The OPEC crisis and expensive oil is not a small factor, probably.

beginning of "Reaganomics": 1983 beginning of compensation/productivity divergence: 1973

maybe there are other factors involved ?

Realistically, EITC expansion or similar would be the tool if you wanna go that route as it’s more easily modeled than nationwide collective bargaining and is generally considered more efficient than a jobs program.

Please think about the amounts of money that we are talking about. Would you seriously consider disbursing $4 trillion dollars through EITC expansion? It is absolutely not designed to handle that kind of money.The EITC cost $90 billion in 2019. Biden's recent budget more than doubled it, but still, it's at a different order of magnitude than what we are discussing:

https://www.pgpf.org/budget-basics/what-is-the-earned-income....

The stock market has been at the all-time high level approximately 80% of the time since the measurements exist.

Even if you wait until the next crash to buy, the chances are big that you will be paying more that if you bought today at an all-time high.

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