More @RichardJMurphy argle bargle

I just knew that this number was going to get bandied about. All the usual suspects will lie about it all. And here\’s one more of them, the retired accountant from Wandsworth known as Ritchie:

In the 60s and 70s wages took around 60% of GDP.

Now it’s about 53%.

That’s a massive shift away from the reward to work in the economy.

That means people are paid less for the value they create.

But it also means that value is taxed less as profit is now (unlike the 60s and 70s) much less taxed than labour.

And this is despite a real rise in the population.

The result is there is more demand for public services and less to pay for it. So we have a government funding crisis.

Sigh.

This is, quite simply, bollocks. Complete, total and utter bollocks.

As I explain in exhaustive detail here.

He\’s making the idiot mistake of thinking that the labour share of income and the profit share of income constitute unity.

Which they do not.

Has the labour share of income fallen? Why, yes, it has. Has the profit share of income risen? Not from the 60s it hasn\’t, no. And even Brendan Barber says that the 70s numbers were unsustainable.

What has risen since then? Why, that would be self employed income, a little bit. And taxes minus subsidies. The largest part of which is the rise in VAT over the decades.

So, far from the fall in the labour share of income being responsible for a fall in tax revenues to pay for public services the fall in the labour share of income is a result of a rise in tax revenues to pay for government services.

Normally with Ritchie I\’m willing to assume that his mistakes are due to his ignorance. This one though, this one I think rises to the level of an outright lie. A deliberate one.

12 comments on “More @RichardJMurphy argle bargle

  1. ISTM that there is another factor here too and that is the changing nature of production.

    If a product is made with a few simple tools, then most of the value is labour. But if it is produced largely by automated multi-million pound machinery, then the division between capital and labour must necessarily change.

    Comments very welcome.

  2. Also ignoring the fact that the economy is much larger. Yet the government’s take from a much larger economy is larger still – why?

  3. SE:

    “You’re expecting sense from Ritchie’s spin on a TUC report (which he probably had some input in to”

    that’s ‘some input’ in the sense of ‘wrote’?

    Isn’t he their main economic advisor? Which sort of explains why their economics are up the swannee.

  4. @Nick Working in IT, I’ve had the same thoughts for a while now. I agree entirely. And, to pre-empt “but this effectively locks out the working class from getting their share” objectors, I’d say “no it doesn’t, given how prices for equipment fall in real terms (especially considering improved performance with time), and how important ingenuity is”. It does mean that we’re *all* going to have to work smarter rather than necessarily harder in order to maintain or improve our living standards though.

  5. Isn’t he their main economic advisor? Which sort of explains why their economics are up the swannee.

    Nah, I think he’s just an external tax advisor. Nicola Smith runs the “Economic and Social Affairs” department and there are a few people in there. I think their economics are up the spout because they’re a bunch of lefty radicals without the sheer brains Chris Dillow brings to bear on it.

  6. I seem to remember reading somewhere that all government spending counts towards GDP. If I am remembering right (a very good chance that I’m not), then won’t the recent splurging by recent governments skew the figures away from labour as well?

    Tim adds: You can measure GDP three ways.

    All incomes (this one), all expenditure (your one) and, umm, there’s another method too.

  7. Not to mention that he says that people are “paid less” – ergo not only are they getting a lower share of a much larger pie but they are getting less than they used to.

    The lefty lunatics never cease to amaze you

  8. Boringly I am repeating myself that the wages going to a bit under 87% of the workforce should be less than that that going to 93%of the workforce so as tyhe number of self-employed increased from 7% in 1980 to over 13% in 2011 the *alleged* share of GDP going to labour should have declined.

  9. Emil: no, he says “they’re paid less for the value they create”. Which is the same as saying “they take home a lower share of GDP”. Congratulations on taking on Ritchie at intellectual argument and losing; I think you may be the first person ever.

  10. @TW
    Your criticism of the TUC stance actually makes a better case than the TUC does that the wage share is falling.If your explanation is that the workers are paying more tax ,then the obvious answer is that people who can more afford it should pay more,viz. high earners and the” new self-employed” including a lot of blokes in white vans trying to live off property repairs after the housing bubble started to sag. You could square your argument by saying the workers should be relieved of taxes on their earnings and the tax base should be shifted onto inflating asset values like housing. But though you are more than capable of mounting an argument for LVT and often express yourself in a rather closeted Georgist vein ,outdoing even Mark Wadsworth in subtlety but not openness , you keep your LVT sympathies secret.Why is this?

  11. It’s a bit wrong, but it’s not “Complete, total and utter bollocks”. Exclude production taxes and mixed income from the calculation, and you’ll find that the employee share of what’s left – gross corporate income including payroll – has fallen too.

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