US consumers remain unimpressed with this progress, however, because they remember what they were paying for things pre-pandemic. Used car prices are 34% higher, food prices are 26% higher and rent prices are 22% higher than in January 2020, according to our calculations using PCE data.
While these are some of the more extreme examples of recent price increases, the average basket of goods and services that most Americans buy in any given month is 17% more expensive than four years ago.
Productivity and wages aren’t intrinsically linked.
Say you’ve got someone digging a trench with a manual shovel, and then the Bobcat is invented. Let’s say that the Bobcat lets someone do five times as much digging. The wage paid isn’t going to be five times the shoveler.
The wage will be set by whatever it takes to get ahold of someone who can operate the Bobcat. That’ll depend on how many people are out there who can operate a Bobcat, and what else they might be doing.
The only guarantee is that it won’t be more than five times the manual shoveler, because then (setting aside, for a moment, the non-labor costs) digging the thing with the Bobcat would be less-efficient than having it manually-shoveled.
In fact, productivity and wages can be inversely-correlated.
Let’s say that instead of a Bobcat operator and a manual shoveler, where the skillset is different and the pool of people who can do each may differ, you have some technological improvement that doesn’t change the pool of labor at all. Let’s say that someone suddenly realizes that the Bobcat shovel could be twice as large and it can scoop twice as much. Ignoring, for simplicity, things like setup time, suddenly every Bobcat operator is twice as productive.
Now, usually there’s some level of price elasticity of demand. If you can make something more-cheaply, then more people will buy it – some people wanted a trench but it just didn’t make financial sense, but now suddenly it does. But let’s assume that demand is entirely inelastic. There is still the same amount of demand then, even if the trench can be dug more-cheaply, and the same amount of trench will be dug.
In that case, one only needs half the number of Bobcat operators. The market allocates workers based on their wage – pay more, more people will be willing to do a job, pay less, and fewer will. What will happen is that Bobcat operator wages will drop until about the required number of Bobcat operators are willing to do the work. Those who were already on the edge will exit the field, do something else.
Wages can also change when productivity doesn’t. North Dakota had an oil boom about twenty years back. There weren’t nearly enough people to work the fields. Wages skyrocketed, and people entered the field or moved to the area. They weren’t more-productive than the previous workers. They were paid more because the supply was limited; paying more resulted in the needed number of workers showing up.
Wages can closely track productivity in some situations. Suppose you have zero price elasticity of supply – that is, no new workers are able/willing to enter a field, no matter what wage is being offered. And there is infinite price elasticity of demand – in practice, immense demand for the thing at the particular price, but not above that. An example – maybe a bit contrived – would be if a number of people with identical cars all locked their keys in their uninsured cars prior to a flood, and a lone locksmith is available. They can break a window to get their keys and rescue their car, or have the locksmith open the car. Anyone who can will pay the locksmith to open the car for up to the cost of replacing the window, but not more than that. There is no time for more locksmiths to show up – supply is inelastic. In that case, if the locksmith could manage to open a car in half the time, he’s be paid twice as much.
But normally, wage serves the role in a market of allocating workers to a given field. It isn’t directly bound to productivity. And you wouldn’t want it to do that, because that’d kill its use to do that labor allocation, which is how the market moves workers where they’re needed. Let’s set aside practical difficulties and imagine that we could pass a law to lock productivity and wage. Suppose it resulted in a lower wage than market rate – as it would with the North Dakota oil workers above – then you wouldn’t have enough workers, and oil that should be extracted would go unextracted. Suppose it resulted in a higher wage than market rate, as it would with the Bobcat operator above. Then you’d have a line of capable-of-using-a-Bobcat people, all of whom want the Bobcat operator’s job. In practice, because the wage is locked, non-wage compensation probably changes – that is, the conditions of the job get worse. The Bobcat operator has to be on-site the instant the job starts, any mistake on his part and he’s immediately replaced, etc. And you have the crowd of people trying to get his job probably trying to offer bribes and the like to get him ejected and themselves put in place.
Disclaimer: I don’t have a degree in economics. I read your post and I think I have countering points to make, but if you can rebut my points below specifically I’ll try to listen. (Also just want you to know I’m not the one who down-voted you since you seem to be arguing in good faith and I’m all about that. Sometimes I’m wrong.)
You talk about making things more cheaply and that resulting in a cheaper product. If companies agree to all charge the maximum they can get away with, it kills industry price competition (a foundational necessity of functional capitalism) and renders price elasticity a falsehood. If Coke and Pepsi both charge 1.50 for a can of cola, it doesn’t matter if increased productivity means Coke can make a can for 20 cents instead of 30 cents - the savings are just converted into extra profit. You can see this in record profits for many sectors as productivity has increased - the savings of needing fewer people to do the same work isn’t passed on to customers. As proof, here’s an article about how much more things cost today than in the 1970’s (adjusted for inflation). Yet we know that people are over 3x as productive per person over the same period, so clearly companies are not passing along savings in the form of cheaper goods. I know more than productivity affects price, but those factors would have to be overwhelmingly more costly to justify the increase and I don’t think things like shipping are that much more expensive.
Inelastic demand for necessary products like fuel, utilities, food, health care, etc also means that in many industries increased productivity does not need to translate to savings. Pharmaceutical companies, either as an industry of multiple providers or where they hold exclusive patents, will raise prices of products to whatever they can get away with because people will either pay or die. So again cheaper products and competition is a myth.
Speaking of getting fewer people to do the same work, companies lay off people all the time when individual productivity or automation goes up. You talk about employing 1/5th the Bobcat workers and net lost 4 workers being forced to find other work. This may make economic sense but it’s terrible societal sense. It results in financial insecurity and homelessness among educated, capable people with all the associated national problems like mental health, crime, drug addiction, etc.
As US economics function now, companies do not pass along the value of increased productivity to their customers in savings, nor to their employees in increased wages, shorter work weeks, or stable employment (re: layoffs). Instead they maintain or raise prices depending on what they can get away with and employ as few people as possible to maximize profit. This has the societal consequences we’re seeing now, such as in OP’s article.
This long explanation supporting capitalism and ‘the market’ fails to take something crucial into account that all these market promoters forget:
Labor cannot have an undistorted market so long as the option to not sell your labor isn’t a valid one.
For any market to be relatively undistorted, a seller must be free to choose not to sell at all if none of the offers are equal or greater than her assessment of the value of her product.
However, as long as labor is needed in order to procure food, shelter, and adequate living conditions, this cannot be the case - people are coerced into selling their labor at values lower than their assessment of its value because to not do so means being denied adequate living conditions.
If people were free to choose not to sell their labor without this coercion, then those seeking to purchase people’s labor would find they likely cannot find anywhere near as many people willing to sell at the price they are offering.
Basically, you are making excuses for the fact that due to this market distortion coercing people to sell their labor, the divide between productivity and wages has grown. It is not necessary to lock wages to productivity - if people have the option, and they see massive profits being pocketed off their work with increasingly minimal compensation, they would choose not to sell…except there comes the coercion to ensure they don’t do that.
I wonder if the same excuses would be made if we turned it around and told companies they must sell their products, no matter how little the customers are offering…
deleted by creator
Sure, if all companies in a market formed a cartel and engaged in price-fixing, and it wouldn’t be a competitive market.
In a situation like that, you’d still have price elasticity of demand working the same way – that’s on the consumer – but supply could be artificially-constrained by the cartel to be lower than would normally be the case.
Sure, if they form a cartel, you don’t have a competitive market. Note that I would guess that the soft drink world is probably not an easy one to create a cartel in, because it’s probably not that hard for a competitor to enter – there are a number of store brand colas – but there will be products where it’d probably be easier – say, airliners or something like that.
I don’t think that the article is saying that all things do – they’re giving examples of some things that do. They give four examples:
The first is homes. Homes do cost more, but I would be surprised if that is due to formation of a cartel of homebuilders – there are a lot of homebuilding companies, and cartel formation is harder the more companies are in a market.
googles
Here’s a list of hundreds.
So, okay. Why do houses cost more?
That one I have looked at before.
They actually don’t, or at least not much.
House prices are higher. But they aren’t for the same houses – new homes have gotten substantially bigger. If you want an apples-to-apples, you want to look at how the same home changes. The Case-Shiller index tracks repeat sales to eliminate this as a factor. Someone’s graphed this (the red line) since 1974 and put CPI up, to account for inflation (the black line).
The long run trend since the 1970s is to follow inflation fairly-closely. What you see there are instead two large “surges” – and we are in the middle of the latter. The first was during the runup to the financial crisis, when a lot of money was lent out and drove a bubble. After that popped, about 80% of the increase in house prices since 1974 was due to inflation.
There’s been a new surge since then, which started with the COVID pandemic. The Federal Reserve held interest rates down during the pandemic to avoid a recession. That made it cheaper to borrow money, so a lot of people borrowed more and more and bid up house prices. But that’s a short-term thing, not a since-the-1970s trend.
Here’s an article from the Fed back when the surge started talking about it.
The second is college tuition.
Similarly, I think that it’s pretty safe to say that all the universities and colleges out there have not formed a cartel, as they’re a lot of them out there, and it’d be pretty difficult to do.
I haven’t looked at this one before, a quick google makes it look like this is may be something of the fact that they’re measuring “sticker price”, not what people actually pay.
The way universities work, there’s an advertised price, which is the highest price that anyone pays. Then there are various forms of financial aid, which reduce the actual amount that an individual pays; typically, this is need-based aid, where poorer students pay less.
Looking at this, it looks like what’s happened is that government subsidy directly to universities has fallen off…but aid to students has risen. The former doesn’t contribute to the advertised tuition price (the university gets money directly, doesn’t need tuition money) but the latter does (the student pays tuition but then gets financial aid).
googles
Yeah. Apparently that was part of a shift from state-level subsidy to federal-level subsidy:
https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/10/two-decades-of-change-in-federal-and-state-higher-education-funding
Hmm. That’s probably advantageous; one of the few things that I think that the US has probably done wrong from a policy standpoint is having a good deal of educational subsidy still be local rather than federal, as it creates problems if people are educated in one place and then move to work in another. That’s a very serious problem in the European Union, and while the US has more-centralized subsidy, still a lot was non-federal.
But I’ll say that I haven’t looked to dig into college costs changes over time before, the way I have housing, so this is an off-the-cuff take. But if it is an artifact of a shift to federal subsidy, I’d probably say that it’s a good thing, fixing a problem that was present in the past.
Let me continue going through your comment in a child comment, so this doesn’t get too long.
Sounds like something the government should regulate…
You sound like an economist.
They may be but they aren’t a very honest one if they are. The idea that the only options are letting corporations take all the gains or a riot at the job site is very anarcho-capitalism.
jeezus Christ Lemmy. what’s up with the downvotes?there is one response at this time and 16 downvotes. the response isnt even disagreeing with the sound theory presented, just saying that our system is too fucked up to work right.
I thought this community was better than this.
Because it’s a wall of text trying to justify why we’re all struggling, and I think people are just done trying to engage with such “galaxy brained” theories that are completely removed from our lived realities. Especially when people probably have better things to do than some point-counterpoint internet argument.
Not to mention, this “sound theory” is just that: a theory. Frankly, all of economics is entirely made up! That’s not to say it’s not a valuable and important study, but it’s also not based on any natural laws. It’s an entirely human construct and something we don’t fully understand. ANY economic theory can be torn apart in thousands of ways by adjusting the models a bit. In the west we’ve been fed the theories from Margaret Thatcher and Ronald Reagan for longer than most of us have been alive, and it seems like those theories are falling apart around us! I think a lot of people are seeing that when GDP goes up and “the markets” go up, we don’t get anything. But when “the markets” go down, we have to immediately shoulder the burden. We see our hard work being absorbed by investors seeking their ROI. We see our loyalty repaid by mass layoffs so executives and investors can earn even higher profits.
So when someone tries to justify it all using the same theories and models that seem to be causing the problem, I don’t blame people for just down voting and moving on.
We’re tired of being trickled down on and it’s time for a new theory.
the downvote button shouldn’t be a disagree button, but a your not adding anything to the conversation button.
Anyone who argues against knowledge and science should immediately be disbarred from the democratic process.
Because, as it turns out, Leftist fee-fees are more important than facts.
I swear, they’re just MAGAs painted blue. Same lack of critical thinking. Same rage. Same propensity for being manipulated.