Err, yes Zoe, you\’re right

I am big and ugly enough to stand accusations of being patronising and naive, of not understanding economics and having a beard.

The economics bit that is.

Real wages in this country have been falling since 1968.

God alone knows where you got that idea from but it\’s such an absurd one that I can\’t believe that you\’ve even shared a library with an economics text, not managed to even grasp the first fundaments by osmosis.

46 comments on “Err, yes Zoe, you\’re right

  1. Did you know the Black Death was Maggie’s fault?

    Of course. It’s because she stole the milk from the primary school children that everybody fell ill. That’s just common sense, isn’t it?

  2. And the reason there’s so much homelessness is because Maggie flogged off most of the council houses for knock-down prices so only a few rich union bosses can live in those which are left.

  3. I presume she means that the labour share of GDP peaked in 1968 and has since fallen.

    So she is roughly on the right track. But then it is only neo-liberals who get pedantic about stuff like this or debt and deficit.

    I don’t spend that much time on Guardian international affairs comment pages but do people there regularly confuse Iran and Iraq ?

  4. Even in the early 1980s, my parents spent nearly half of their income on housing, most of the rest on food, heating and other essentials. No car, no foreign travel, no computer, no satellite TV, no broadband. They weren’t poor, just typical working class.

    Compare with now and claim that real wages haven’t risen.

  5. In the 1960’s my Dad (wife, and two kids)bought a small semi(no garage-small garden), ran a car (a mini), smoked, paid for family holidays (only a hired caravan/trailer in the UK) and we even got a colour tv after a while, all on his wage as an ordinary draughtsman at the local big firm. My Mam didn’t work as was the way it was back then. Is there anybody who thinks someone in an average job could do that nowadays?. I know lots of couples who both work and who are still struggling.
    We have more electronic junk to buy but in terms of real spending power I think we are much worse off. Not for the reasons Dear Zoe thinks of course. I blame decades of state thieving and debasement of money.

  6. I’m more inclined towards Ecks’s position in comment #7. Any measure of “real wages” is prone to enormous uncertainty and bias. But it seeems like we’re only getting more spending power in a few sectors, primarily hi-tech sectors (“electronic junk”) in which money-prices are currently falling faster than even the State can inflate them.

    This is the old problem with an aggregate statistic. It smears over the specifics.

    In a generally growing economy, the general expectation is that costs of basics- housing, food, energy, chips, beer, ciggies, loose women- should gradually fall heading towards an eventually trivial proportion of income due to generally increasing productivity allowing lower prices. This doesn’t appear to me to be happening.

  7. When I were young I lived in t’hole in the t’ground and ate gravel. You try telling Guardian readers that these days and they don’t believe you!

  8. Shinsei67

    That chart looks just like the infamous climate change hockey stick. Even has the medieval warm period.

    I think I might be on to something.

  9. Mr Ecks,

    In the 1960?s my Dad (wife, and two kids)bought a small semi(no garage-small garden), ran a car (a mini), smoked, paid for family holidays (only a hired caravan/trailer in the UK) and we even got a colour tv after a while, all on his wage as an ordinary draughtsman at the local big firm. My Mam didn’t work as was the way it was back then. Is there anybody who thinks someone in an average job could do that nowadays?. I know lots of couples who both work and who are still struggling.

    It’s housing that’s doing it. Food is a much lower percentage of household spend, transportation is definitely cheaper because cars last much longer.

    And there’s only really one simple solution to that: tarmac the fucking greenbelts.

  10. Tim Almond-

    And there’s only really one simple solution to that: tarmac the fucking greenbelts.

    Please stand for election somewhere. Wherever it is, I promise to move there so I can vote for you.

  11. @Yorkie, tha’ were nothing. When I were a lad we lived in a t’hole in t’ground which we had to fill in every day and dig out every night. We only ate gravel and coal on Sunday. T’rest of t’week we had to make do with dust.

  12. The problem is that people’s willingness to spend all the rest of their money on housing seems limitless in this property-obsessed society. A reduction in the cost of food and transport and gadgets is just offset with people’s willingness to pay more in rent or mortgage.

    The increase in housing costs is not only down to the difference between housebuilding and population growth.

  13. “In a generally growing economy, the general expectation is that costs of basics- housing, food, energy, chips, beer, ciggies, loose women- should gradually fall heading towards an eventually trivial proportion of income due to generally increasing productivity”
    If of course the benefits aren’t cancelled out by increases in taxation. Which they have been for everything on your list apart from loose women. (It’s just everything required to attract loose women, taxed.)
    But then, as the taxation is going towards paying for Broonian style income supplements the effect of those should be included in “real wages”, no?
    @SBML Y’got dust? Ee, thy middle class pansy…..

  14. IanB (#9), there’s a pretty good correlation in your examples between government interference and rising costs.

  15. Blue eyes is right as well as everyone else. I’ve a feeling you could build all the green-belt new towns you like and make little difference to prices across the board. Everyone would have more house but still be paying as much for it because British housing consumers are not economically rational beasts.

    People select housing to be the “best” they can get for the money within their own definition of “best”, and spend all they think they can afford after essentials (or usually rather more than that) on it.

    Me, I’m happy in my cheap(ish) house in a slightly odd and very nondescript part of town and having a grand left over at the end of the month. Most housebuyers do not think like that – if they had money left at the end of the month, they’d move.

    I think it’s British psychology to see housing in relative terms, rather than absolute ones. If you demolished the entire stock and replaced them with 4000 sqft McMansions, you’d still have people moving a few roads in the direction of town/country dependent on their lifestyle choice every time they had money left over at the end of the month.

  16. @Bloke in Spain,

    That’s “thou middle class pansy”. “Thy” is possessive in Yorkish.

  17. @JamesV

    Yorkish? You means some of you people are from outside of London? How very earthy – it might even attract the odd Guardian reader looking for a touch of the authentic…

  18. “Me, I’m happy in my cheap(ish) house in a slightly odd and very nondescript part of town and having a grand left over at the end of the month. Most housebuyers do not think like that – if they had money left at the end of the month, they’d move.”

    THIS!

  19. Hold on there are the polls closed yet ? I’m voting with Julia on this, I’m in favour of freeing up the planning laws for sensible development but tarmacing over the green belt, no, I shall be voting early and often against that. James V has it right I think.

  20. It’s a case of making more of some thing means that while the value (cost per unit consumption) increases, the absolute cost does not fall, as would be the usual case in supply and demand things. Consumption rises to meet supply at the same cost.

    Tim will know the real economics jargon term for this.

  21. “an ordinary draughtsman … in an average job”: back then draughtsman may have been an above-average job.

  22. Um, what about tax? There was no VAT in 1968, so does that not affect the relative standards of living? A lot of stuff would be 17% cheaper if there wasn’t 20% VAT on it. Your £1500 holiday for 4 would be £1245 without the VAT, which would go along way to pay your Sky TV bill for example.

    And what about council tax? What % of income went in rates in 1968, vs council tax today? My guess is considerably less in ’68.

    Oh, and NI contributions have gone up too.

    My guess is that the problems people have matching the living standards of the 60s in similar jobs today is partly down to increased housing costs yes, but mainly due to the State nicking more and more of your rising real gross wages.

  23. back then draughtsman may have been an above-average job.

    Draughtsman was a high-skilled job. Not quite a toolmaker but a definite cut above even skilled machinists. And, barring ink stains, a clean one too in most factories.

    I wonder where my set of sapphire-tipped pens for use on drawing film have gone …

  24. TW has played this card before: to him the falling share of GDP going labour’s way is not a fall in real wages ,for pendantic reasons best known to himself.To everybody else ,the inability of working -people to pay for all that they produce with increasing productivity is still outageous ,call it what you will.

  25. As I understand it the term real wages refers to wages that have been adjusted for inflation. Words do have meanings. It isn’t for Zoe, or DBC to unilaterally decide that words mean something else.

  26. to him the falling share of GDP going labour’s way is not a fall in real wages ,for pendantic reasons best known to himself.

    It’s simple arithmetic. If GDP rises faster than inflation then the labour share of GDP can fall while real wages rise. This isn’t hard.

    To everybody else ,the inability of working -people

    How many Rolls-Royce workers have ever been able to afford a Rolls-Royce? I can’t afford to buy the products I work on (actually, I couldn’t even get the licences, they’re reserved for trustworthy people like Middle-Eastern or Ex-Sov-Bloc dictators.)

    If you are not producing more value than you cost your employer in pay+, then you either work for the public sector, are a FTSE100 director, or are about to be made redundant.

  27. Just as an aside=

    MV=PQ

    How can production (measured in money units) rise faster than inflation? Answers on a postcard please.

  28. How can production (measured in money units) rise faster than inflation?

    Nonsensical. Inflation is a measure based on the unit price of a basket of items.

    So what you are actually asking is “how can the unit price”(production measured in money units) rise faster than the measure of the change in the unit price.

  29. Yep, it’s nonsensical. The answer is (IMHO) that the inflation figure is total bullshit; but that it is always used as if is “Q” in the above equation, or at least a close approximation. Which as you’ve just recognised, it isn’t.

    It thus follows that it is meaningless to cost-adjust anything by “inflation” as if it is Q, because it ain’t. Both Q and P are hard-locked to the money supply; which leads us to the next conclusion that GDP isn’t measuring PQ; but again aggregate statisticists pretend that it is. GDP isn’t actually measuring production at all. What the fuck it is measuring, god alone knows.

    Conclusion: we have no actual measure of economic production, because money units can’t measure it. The Soviets actually had more accurate figures by measuring tractors.

  30. GDP is also screwed because it measures value by what people are prepared to pay for it. That way, a government employing a bureaucrat to count paper clips is producing their salary’s (plus overhead’s) worth of paperclip counting. This is what I absolutely don’t get about the Greek scenario – the screaming that austerity will cause GDP to tank. Well, sure it will, but what goes first is lots of P analogous to that paperclip counting – consumption of paperclip-counting services that are not wanted anyway. It’s Production that shouldn’t be happening and we are better off not paying for.

    Perhaps we need instead to be measuring gross domestic consumption – and then try and work out what portion of that is actually met by production as opposed to being borrowed at an unsustainable rate.

  31. Consumption seems to be a more useful statsitic to me. At least it doesn’t include the error of including business to business transactions (value is only created in the minds of end-user consumers[1]) and government spending, which measures nothing but, er, spending. The government might be creating or destroying value, in various sectors. We simply have no idea; there’s no way to measure it at all.

    [1] Which is again complicated by business-purchased perks like company cars, company BUPA plans, etc.

    Tim adds: “Consumption seems to be a more useful statsitic to me.”

    Err, yes. Which is why we have the three different measures of GDP. By production, consumption and incomes.

    As it happens, production is the easiest one to measure, consumption the most difficult. But we do actually, over time, measure all three and even compare them with each other.

  32. @SE
    A premium product like a Rolls Royce is specificially designed not to sell in large numbers on the mass market.
    But Ford realised in 1913 he could raise his workers’ wages to $5 a day ,effectively double the existing rate so that they became potential purchasers of his products.The price of the Model T fell from $8oo to $300.
    The” modern “plan to raise productivity and not to raise wages proportionately is doomed.As is the Coalition’s madcap scheme to increase prosperity by decreasing aggregate purchasing power(while also keeping house prices pegged at an inflated level).

    Tim adds: DBC, we’ve been through this before. And I know you’ve seen it because you commented on it.

    http://www.adamsmith.org/blog/tax-and-economy/on-henry-ford-and-his-5-a-day

    It was sod all to do with creating a market for his own products.

  33. I still keep hearing this nonsense, and can’t believe that people can’t work out for themselves the fatal flaw in this . I don’t know if Ford ever actually did this, but if he did, then he was a cretin. A few seconds thought can see the problem here.

    Car sells for $100
    Car costs $85 to build.
    Ford makes $15 per car sold.
    Ford gives worker $100, and gets $15 back.

    Not exactly a workable model. (The principle applies whatever figures you plug in).

  34. For most jobs it is the market that sets both wages and wage increases. That it might not set them at rates that some people like does not mean that the market has failed.

    Given that many workers also have pensions, I am not sure what would be gained by increasing wages so high that there are then no profits left over to allow for share dividends which pay for people’s pensions.

  35. Ooops, posted in totally the wrong window in case anyone wonders what the hell the above has to do with anything.

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