Economics: Nixon, Carter and the 2%By: Stephen Marsh
The post-war economic landscape has the world up to Richard Nixon and then the world from Jimmy Carter to the present.
Through Nixon there was a 97% increase in productivity. Of that, labor got 95 points (95 out of the 97) and the owners of capital got 2 points.
From Carter on there has been an 80% increase in productivity. Of that, labor got 10 points, management, owners & consultants split the other 70 points.
Points are a useful concept, because labor’s ten post-Carter points are 12.5% of the improvement, but saying that they got 12.5% of the gain in productivity doesn’t really tell you how much they got. What if they had gotten 20% of the gain but the improvement overall was only 10%? Telling someone that labor got 2 points tells you a lot more than saying they got 20%.
Now, NPR recently covered part of the story (including how Nixon’s presidency was a high point in consumer and worker protection legislation and how Carter’s presidency was the beginning of the era of lobbyists for business and the long slide). But NPR missed the Gotrocks part of the story. The essence is that the “owner” part of the revenue stream actually goes to owners, consultants and management — three constituencies that are often hostile to each other’s best interests.
As Warren Buffet has noted “Between Dec. 31, 1899, and Dec. 31, 1999, to give a really long-term example, the Dow rose from 66 to 11,497” … To get very specific, the Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3 percent compounded annually. (Investors would also have received dividends, of course.) To achieve an equal rate of gain in the 21st century, the Dow will have to rise by Dec. 31, 2099, to — brace yourself — precisely 2,011,011.23. But I’m willing to settle for 2,000,000; six years into this century, the Dow has gained not at all. [Caveat, it was 13596.93 on Thursday night.].
There are several different stories explaining why (a) the allocation of productivity gains has shifted so much and (b) where the money has gone. But the bottom line is that economic growth has had some dramatic slow downs, owners are not getting richer at any appreciable rate, and productivity continues to increase. And according to the CIA, the GINI index for the United States looks more like Iran’s (the mid 40s, like ours) than Canada or the Scandinavian countries.
The country with the most income equality, Sweden ,has a corporate tax rate (the tax rate on owners) of 26.3%. For “real” people, “In 2010, individual income tax rates in Sweden change between 54% and 61%, 57.77% being the average tax rate.”
Compare that to the United States (though do include both sides of social security taxation when you calculate taxes on income — it bumps it up to around 15% for those who are accused of not paying any taxes).
There is a lot going on. The slow down in the growth of the economy is tied to many things, but historically one destabilizing factor is a larger GINI number, especially one that comes about as groups wedge themselves into the revenue stream between the workers and the owners — or when a country gets rid of that class altogether (the killing fields where they got rid of all the management and consultants collapsed Cambodia — it turns out that without managers things get worse, not better).
No prescriptions from me, just observations. But next time someone talks productivity, gains in income, tax rates and equality/inequality you will have the real numbers and some comparisons. Important for the next round of political debates.