Economics: Nixon, Carter and the 2%

By: Stephen Marsh
September 21, 2012

The post-war economic landscape has the world up to Richard Nixon and then the world from Jimmy Carter to the present.

Reagan, Ford, Carter, and Nixon

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).

The point?

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.

11 Responses to Economics: Nixon, Carter and the 2%

  1. Samuel Rogers on September 21, 2012 at 7:55 PM

    That long term example from Warren Buffet is pretty incredible. The population also quadrupled from 70m to 300m. We don’t have room to keep growing like that as a population, so how much of economic slowing can be attributed to this?

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  2. Geoff - A on September 21, 2012 at 10:01 PM

    The GINI index for countries like Canada, France,Norway and Sweeden had dropped over the last 50 years so equality has increased. Wealth has been redustribuited toward improving the lot of the average person at the expense of the super rich, not that they will be poor. Perhaps even that the average people have been raised up.

    These countries are the happiest places because they have a collective sense that they have worked together to create a more equitable society (Zion, no poor among them.) They are also social democracies.

    America, and a few others have gome in the other direction with wealth being redistributed to the super wealty. America was more equitable and stable country 50 years ago, but there are many Americans still fighting to keep the money flowing toward the wealthy and away from the needy.

    There is a culture in America that claims some unsubstantiated things such as capitalism = creativity and that America is exceptional ie superiour?

    These figures seem to undermine some of these beliefs with fact.

    As Mike – S was asking in the previous post how do you acheve a Zion society? Look to those who are achieving it, and you will find a more healthy society but also a more financially healthy society.

    An election between a person who wants to swing America back to a more equitable country, and one who seems only to understand the wealthy, and thinks those who are not wealthy are not contributing to society, and sees people in terms of $.

    And as the previous post says Mormons will mostly vote for the wealthy, not because of their religion but because of the culture that goes along with it. Sad? Bad?

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  3. Stephen R. Marsh on September 22, 2012 at 9:05 AM

    Geoff — that is an excellent point about what is closer to Zion.

    It is interesting to watch people struggle to find ways to work fewer hours — they are willing to accept proportionately less pay for the privilege — and there is such resistance to allowing that to happen.

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  4. Tom D on September 22, 2012 at 6:49 PM

    Envying the wealth of others does not strike me as leading to a Zion society.

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  5. Geoff -A on September 22, 2012 at 10:14 PM

    Do you think there would be more envying of the rich in a country where the distance between the average and wealthy is greater or less? My experience is less. Envying the rich is not a concept of political discussion in countries where each feels like their contribution is valued.

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  6. Julia on September 22, 2012 at 11:51 PM

    For two more interesting things to add to the discussion,

    I found both of them to have clear viewpoints that truly look to the future, even if they are pretty scary.

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  7. Geoff - A on September 23, 2012 at 8:32 AM

    Sorry in 5 I should have said my experience would be greater. The closer the average are to the wealthy the better, healthier the society, because there are less poor among them.

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  8. Bob on September 23, 2012 at 9:34 AM

    #7: Geoff-A,
    Are you saying the 19th Cen. British Empire/society was a bad one because it was largely made up of poor people? Or Greece, or Rome?

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  9. Stephen R. Marsh on September 23, 2012 at 5:37 PM is a good link for more on economics, btw.

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  10. Geoff - A on September 23, 2012 at 11:04 PM

    #7 Bob

    Yes I am, I would not have wanted to live then unless I could be garanteed to be rich and without empathy too.

    One of the points of the posts is that the higher the disparity between poor and wealthy the less pleasant a place it is to live. I live in a place that is about 30 on the GINI index. I have visited America for months at a time and there is a different, less team like, feeling in a country that is higher on the scale like the US.

    You find people in America saying there was more of a spirit of community 40 or 50 years ago than now, this is what they are talking about, America was lower on the scale then.

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  11. Stephen R. Marsh on September 24, 2012 at 6:19 AM

    Geoff — you hit it. Greece and Rome were both slave driven. The British Empire had a huge underclass. Consider that “purefinder” was a profession, not an insult.

    For most it was a desperate time. Even the “wealthy” (that is top 20% but not top 2%) in Greek society were poor by our standards, very poor.

    There is a reason that Greeks and Romans averaged 5′ or so in height while the Norse were much taller and it had to do with poverty of diet.

    Well noted Geoff, well noted.

    BTW, this is the final part of a Zion society I think, structures that make people responsible, yet do not promote huge class stratification.

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