What is Necessary to Reverse Labors Falling Share of National income For the last thirty-five years or so, labors share of national income or GDP has fallen and capitals has risen. This has skewed the distribution of income and caused consumption and investment to stall or decrease relatively. Savings relative to GDP has shot up, as have financial asset prices with the increase in demand for them. Governments effort to provide more liquidity and lower interest rates only push financial asset prices even higher and increases hoarding and money leaving for off shore accounts. The velocity of circulation of money still drops. Some think this trend in labors share will reverse itself. Others, like this author dont. Consider what needs to occur for labors share of income to rise and capitals, to fall. Some or all of the following needs to happen: labor will need to displace robots and other machines installed to replace labor; interest income and income from economic rents would need to drop instead of continuing to rise; and, quite importantly, reported and shadow unemployment would need to drop substantially, so the percentage of the the working age population would rise markedly. Government policy needs to charge substantially, too. Pushing excess liquidity into the hands of the wealthy and the banks needs to stop. It really only enriches the already wealthy and encourages banks to engage in activities they really should not. It doesnt work as suggested to increase investment. Depressing interest rates, which causes financial asset prices to rise and their markets to bubble up needs to stop as well. It too, only enriches the wealthy and doesnt increase investment. Investment is stalled with government and private consumption depressed, hoarding on the rise, and deficit hawks at the helm of government. Also, the aggregate burden of the tax system needs to be made much less regressive and much more progressive, if it is to help any reversal. It too, only enriches the wealthy and like other such results, just skews the mal-distribution of income further. Finally, reversal in the decline of labors share would be greatly aided by a guaranteed minimum income for all, financed by highly progressive average and marginal income taxes, highly progressive average and marginal inheritances taxes and sensible class-neutral revisions to the Tax Code, corking the myriad loopholes which have been drilled by lobbyists for the wealthy. In short, by its actions and inactions, government itself has been compounding the problem of labors declining share of national income and worsening the already bad distribution of income. The bottom line, it is submitted, is dont hold your breath on any reversal of the decline in labors share of national income or for any real improvement in the mal-distribution of income -- at least with the institutional and governmental arrangements we have, and with our present system of campaign fiance.
Posted on: Sat, 22 Nov 2014 07:02:17 +0000
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