This WSJ piece “Has the world lost faith in Capitalism” had this infographic:
And prompted Marc Andreessen @ to remark on Twitter: “The inevitable result of 15 years of slow economic growth.”
His tweet prompted me to think about the relationship between economic growth and the gini coefficient (a measure of income inequality). And there’s a lot to it.
I don’t think it’s a straight line causal model between economic growth and inequality. (And I’m not suggesting that Marc thinks it is, it is, after all, Twitter).
The core representation of a causal model is depicted below:
In very short terms, when we decided in 80’s that we were going to go for a service based economy, the linkage between wage growth and productivity became strained. Wage growth used to be driven by higher productivity. But a barber can’t increase their productivity by 3% year on year owing to the core constraints of what it means to cut hair. Professional services don’t scale. That applies to the macro-economy too.
It’s now at the point where they no longer appear to be linked. Wages are flat. Inflation is nowhere to be seen. People are (irresponsibly) shouting at the Fed to raise rates. There’s a distinct whiff of deflation in the air.
So, not merely content with sub 2% productivity growth, those who can afford to buy globalization have been exporting their inflation: first in the form of manufacturing, and then later, in the form of service jobs. Sound familiar?
It’s been nearly two years ex-RBC CEO Gord Nixon argued that the Canadian middle class was feeling anxious as the core independent variable for the Temporary Foreign Worker Public Relations meltdown. It’s line that I’ve heard repeated at meetups and pub discussions across the country.
The middle class is anxious.
And they should be. Education isn’t the moat that it once was. It’s still an excellent investment in Canada (at least). It’s still subject to asymmetrical globalization.
I’m disturbed by the WSJ findings. Social capital is a lot like soil. It costs a lot of get it enriched and it’s easily exhausted. If Americans believe that the economy is rigged, it severely complicates transactions. It increases distrust. It outright retards economic growth. It’s very hard to replenish that trust once it’s been blown away. All the king’s horses and all the king’s edelman couldn’t put humpty dumpty together again.
The answer might not actually be increasing wages. The ultimate answer to the productivity trilemma may actually lie in increasing gross happiness by shifting the length of the work week.
That may be a more politically palliative solution to the 0.1%, and is likely the core subject of the debate we’re going to have in 2020.