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Productivity and Earning by Mayatiita

I am attaching a graph I’ve prepared for my classes. It shows productivity
growth (output per hour), average earnings, and total compensation for the
U.S. The difference between average earnings and total compensation is that
total compensation includes benefits, notably health insurance. The diagram
gives evidence that in recent years an important drag on earnings in the U.S.
has been the high cost of providing medical benefits.

Economic theory tells us that productivity and earnings will grow together.

I am attaching a graph I’ve prepared for my classes. It shows productivity
growth (output per hour), average earnings, and total compensation for the
U.S. The difference between average earnings and total compensation is that
total compensation includes benefits, notably health insurance. The diagram
gives evidence that in recent years an important drag on earnings in the U.S.
has been the high cost of providing medical benefits.

Economic theory tells us that productivity and earnings will grow together.
Businesses will maximize profits by hiring labor to the point where their
productivity matches the additional revenue the worker brings to the firm. If
the worker becomes more productive (producing more per hour), either because
of improved technology or an improved skill set, the worker can command a
higher salary. In any case, it will not be possible to pay the worker more
than the revenue he/she will cause to be brought to the firm. But this will
include total compensation, wages and benefits.

The graph shows that for decades productivity growth has been positive in the
U.S. Only during the 1970s did productivity growth slow for an extended period
of time, and even declined (when the yellow line dipped below zero). Until the
1970s, and previously for most of our history, there was a very close
correlation between productivity growth and earnings. Then in the 1970s the
two started to disconnect. Average earnings growth dropped steeply in real
terms (corrected for inflation) due to high inflation and the economy’s
maladjustment to the new specter of globalization. The decline in real
earnings continued through the 1980s. Only in the late 1990s did workers see
real earnings increases due to the widespread productivity gains from the
information technology boom. We see since the turn of the century (about when
Bush took over) there has been a renewed disconnect between productivity
growth and real earnings growth.

Now notice the red line, total compensation. Total compensation has maintained
a much closer association with productivity growth, as economic theory would
predict. The wide gap between total compensation and real earnings growth,
particularly in recent years (notice the big spike about 1998), most likely is
caused by increasing health insurance costs, which has traditionally been part
of compensation packages for full-time workers in the U.S. The failure of the
U.S. political system to come to terms with rising health care costs, and the
lack of medical security in general, has cost U.S. workers dearly. If Obama
does finally take on this problem, he will do much to raise earnings for U.S.
workers. Proutists can be vocal on this, as this is an issue that fits well
into our ideology — guaranteeing basic necessities.

The other problem of globalization, which causes U.S. workers to compete with
workers who cannot form unions and who live where dysfunctional economies
create excessive unemployment. Those problems also create excessive
immigration. It remains to be seen to what extent Obama will take these on,
even though he promised he would during the campaign. Prout can provide
answers to this also with our promotion of localized economies, although we
have much work to do to demonstrate theoretically and practically that people
will see benefits from it in their living standards.

Re: cooperatives, Jaroslav Vanek has proven (the argument is quite technical)
that there must be a close correlation between productivity gains and incomes
in labor managed economies, more so than in a capitalist economy. That in
itself is likely not enough in itself to sell cooperatives in popular media.

I think the big advantage in Obama’s victory is a new climate for political –
social thought. I believe he is honest, capable, and well-intentioned.
However, we cannot expect him to endorse the kind of sweeping reforms Prout
calls for. Since the Reagan-Thatcher era the range of political discourse has
been extremely narrow. Progressives have self-censored, being on the defensive
and afraid of having their ideas immediately dismissed. I think that will
change now, and what we will see will be much better than the flourishing of
new thought in the 60s and 70s. That era was polluted with useless
intergenerational warfare which we do not see now. Survivors of the 60s are
joining with young people. And now capitalists are on the defensive and are
begging the people to bail them out from the consequences of their greed (that
they have also imposed on the rest of us).

Re: predictions of a depression rather than a deep recession. Let’s not go
through that again. I for one appreciate Ravi’s restraint on that point. There
simply is no reason to think that we will go through something like the Great
Depression imminently. Most observers believe that that calamity was spurred
on by downright perverse economic monetary and fiscal policies. Since then
macroeconomic policy has become considerably more sophisticated, and there is
not much doubt the government can keep the the economy churning if it has the
will. When push comes to shove capitalists will reluctantly support efforts
for government intervention, and even regulation, to save them from
themselves. Like Roosevelt, Obama will implement reforms not to overthrow
capitalism, but to save it. But the suffering of ordinary people will be
reduced.

Proutists must use this opportunity as peoples’ minds are opening to inject
ideas of universalism, basic necessities as human rights, and economic
democracy into public discourse. As the economy gradually improves and people
are mentally more relaxed, in a more open intellectual environment they will
be more willing to consider these ideas and make demands based on them.

Mayatiita

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