Reply To: Wages


First, I agree with the basic point of the story posted on ZeroHedge. Freeing the Fed from the final gold fetter on its monetary inflation with Nixon’s repudiation of Bretton-Woods was a watershed event. The American economy has been worse since 1971.

Second, in order to see whether or not a particular worker’s wage correlated with his DMRP you would have to look at data specific to that person and the production process he works within. The data in the graph are highly aggregated and deeply controversial. Productivity data are especially problematic.

Most of the respectable data sets at least limit aggregation as much as possible.

Wages are not a reliable guide to whether or not a person’s standard of living is rising, falling, or stagnant. At a minimum, one must know what’s happening to the prices of goods also.

The most reliable way to tell whether or not a person’s standard of living has risen is to look at how the set of consumer goods the person has changes over time. If he accumulates more and better consumer goods in the set that he owns, then his standard of living is rising. By this measure, I think it’s safe to say that standards of living have risen significantly over the last 50 years.

Rising standards of living result from rising productivity which is caused by a combination of 1) acquiring more and better producer goods: labor, land, and capital goods; 2) improving technology; 3) lowering time preferences to have more saving-investing [including in 1 and 2] which results in building up the capital structure of production; 4) enacting pro-market reforms; 5) fostering a culture of entrepreneurial initiative.

Which of these causes are most important may vary across person, place, and time. But, in general, capital accumulation seems to be the most important.