An MMT site bringing you dogma-free economics without the pleadings of self interest
I like the way Duy says “I am sure the collected wisdom of the blogosphere can come up with other drags.” You bet. How about this.Capitol Hill is one huge drag. As for the entire Euro edifice, I couldn’t dream up a bigger drag if I tried.
ralph, more like sabotage
Duy mentions the unemployment rate, but that is even less significant, to my mind, than the decline in the percentage of the population that is employed. People in the workforce are experiencing high unemployment, but people are also leaving the workforce. How can an economy grow when the percentage of its people earning a spendable wage is falling?
Perhaps might be possible with huge productivity gains Dan, ie this might be able to get gdp growth somewhat positive even tho people were leaving workforce...But of course their is your previous point that simple gdp growth does not really paint an accurate picture of what is going on in an economy...For me, this leads back to the idea that we probably need much earlier retirements with a substantial public pension (more than present SS/Mediacare)...rsp,
Matt, I don't think increasing the overall amount paid in public pensions is a viable long term solution if the economy isn't growing.
Dan,For instance:GDP= C + I + G + (X-M)So if there was great productivity increases, Government could increase retiree transfer payments with the intent that C would increase, make sure G was not getting cut, and work thru tariffs to hold current (X-M) constant, then if the private sector was at least holding I constant (which if there was great productivity gains I would think I would be probably be increasing), we could have GDP growth.At some point we should want to "harvest" our productivity gains, one way to do this could be earlier and more robust public retirement policy...Rsp,
What percentage of GDP does the group think includes a labor component?Does GDP without a labor component matter? How?
"How can an economy grow when the percentage of its people earning a spendable wage is falling?"VERY slowly, by bartering for services from people living in caves? :(
Paul,Doesnt look like labor is in there directly anyway....Can we have C without labor? I dont think so..Can we have I without labor? I dont think so either...Can we have G without labor? No imo...Can we have (X-M) without labor? if X is non-zero then no...So we need to have domestic labor, but how much? Over-taxing makes people work that much harder/longer to be able to have income left over to be able to save and consume iaw individual desires...If aliens showed up and volunteered to do all human work and would immediately turn all USD sales proceeds for goods and services over to the govt, and would provision themselves from the mother ship in orbit, this would result in a zero GDP, but our morons would probably still keep taxing until there were no USD balances left and we all would die because no one would have USD balances to buy from the aliens...rsp,
Matt,I suspect there are many transactions booked that don't have much if any labor component, for example transactions in the financial services industry that accounts for about 40% of GDP.So, my question was how much is wages as a percentage of GDP?Plus, it seems to me that increases in productivity will further reduce the labor component unless there is a corresponding acceleration in the rate of consumption.
I think Germany has a lot of industry that requires LESS labor just due to the geography of northern Europe vs Greece which looks like it is many islands chiseled out of solid rock.So Germany is "more productive" than Greece and then Greece gets effed because the "debt to GDP ratio" by definition has to be higher in Greece but the treaty treats all countries over there as if they had the same geography...Same with the Financial Services industry over here vs the rest of the economy it appears more productive...rsp,
paul, strictly speaking, "product" in GDP means product, i.e, some good produced by existing fixed capital, and the good can be either a consumer good or a capital good. Finance is a service and services don't produce good.GPD is a misnomer in a service economy, which uses all transaction regardless of whether they are are productive strictly speaking.As a result GDP can increase while manufacturing contracts as a % of GDP and financial services increase.This gives a skewed idea of how productive a county actually is. The US is becoming less productive, even though productivity is increasing based on sectoral contributions to GDP.A lot of people are now becoming concerned with this trend as weakening the US economy and thereby America itself, threatening its place in the world. Andy Grove has been especially vocal about it.
Tom, seems like I have read that the financial services industry accounts for over 40% of GDP now.Am I mistaken?
btw, I understand that a lot of the transactions "measured" by GDP don't really add to Income pers se.Just trying to figure out how much (or little) labor is as a percentage of the total.It seems to me the lower labor is as a percentage of goods produced the worse it is for workers and by extension capitalism because capitalism depends on spending, and most of that occurs through wage exchange for money.
GDP does include services - but only "final" services. It doesn't include the purchase of financial assets. But I believe it does include most financial services.
paul,It gets back to our policy morons... look if Barbara Eden showed up in an 'I Dream of Genie' suit and started "blinking" all goods and services into existence... OUR MORONS WOULD NOT KNOW HOW TO DEAL WITH THAT!Short of Barbara Eden, we have been increasing productivity probably the most per unit time in human history and yet these morons think it is a good idea to RAISE the retirement age to 70 and CUT other senior programs...How much and how long do we want to continue to work?This gets back to morons in govt who think "money" is exogenous to the govt and they have to get revenues to be able to spend... ie "hey we need more tax money so people are going to have to work more and pay income taxes longer so we can balance the budget..." ie morons...We dont have to work as much and as long as we all do but for fiscal policy.... rsp,
The financial services types probably go to the govt morons and say: "yes we do make tons of money compared to the rest of the US... but look at how much tax revenue we generate for you!.." then the govt morons say: "well you do have a point there...."
Paul Ryan has made a big govt career out of being the leading policy pointman for this idiocy... this is all he does all day, everyday... 24/7/365... sad.
@ paul• The crisis has highlighted the perverse effects of financialization- Growing share of profits: the financial sector’s share of GDP increased from 13 percent in 1970 to 20 percent in 2007 in the US; but, the financial sector’s share of total corporate profits is a lot higher – currently it is around 40 per cent. International Institute for Labour Studies World of Work Report 2009: The Global Jobs Crisis and Beyond 2- The wage gap between financial and non-financial workers has widened: the real wage gap between financial and non-financial firms in the United States widened from US$11,000 in 1987 to US$40,000 in 2007 (per annum per employee). Such trends in compensation in the financial sector have continued throughout 2008 and 2009.- Adverse impact on non-financial firms: an important indicator of finance’s growing influence over the real economy is the evolution of dividend payouts, which as a percentage of total profits doubled from 22.8 per cent in 1946–1979 to 46.3 per cent in 1980–2008. The share of investment as a percentage of operating surplus declined from 46 per cent in the 1970s to 39 per cent in the 2000s. • Making finance work for the real economy: finance over the real economy comes with benefits and costs, but the crisis of 2008–09 shows that the costs are enormous. So far, governments have done little to tackle the growing dominance of finance and the pace of reform has been excruciatingly slow. Going forward, it is imperative to align the incentives of the financial sector with that of the real economy.World of Work 2009 emphasis added
Tom: Thanks for the followup. I see I was conflating percentage of GDP with profit.20% of GDP is still a big deal tho in my view. That segment of GDP is largely extractive and leverages the credit circuit to extract a much greater proportion of financial wealth, leaving less for the productive members of society.
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