Political economist doesn’t know economics

Ho Hum:

Over the last 45 or so years of neoliberalism, there has been a massive increase in productivity in the UK, as there has been also in the USA and other countries where markets have been allowed to grow rampantly. But the benefits of that trade have not gone to labour. The share of profits within the economy over that period has grown dramatically. The share of labour has fallen dramatically. Broadly speaking, 10% of GDP has moved from rewarding labour to rewarding profits, and the consequence is that people do not feel the benefit of the growth that has supposedly happened inside the economies, which politicians are always talking about, because they didn’t get it.

The Wage Share of national income has fallen, yes. The Wage Share is what is paid in wages, obviously enough. The Wage Share plus national insurance (largely enough but also including any other worker compensation, pensions etc) makes up the Labour Share. National Insurance rates have risen over these decades. So, with a static Labour Share we’d see a falling Wage Share because government wants more to spend on politics.

The Labour Share is one of four – note, *four* – shares of the National Income. The others are the Capital Share, Mixed Income and then Subsidies to Production and Taxes on Consumption.

The Capital Share is about where it’s been over the long term – yes, a recovery from the nadir of the mid-1970s when it didn’t even cover depreciation let alone include any profits but not out of line with the long term at all.

The Mixed Income share has risen. This is – again largely – the incomes of the self-employed. It’s difficult to work out whether incomes there are labour incomes – time – or capital – the use of the toolbox and the white van. So, we count it separately. Yes, this share of the National Income has risen.

Taxes on consumption. I’m not the only one able to note that – tho’ this is far beyond Spud’s abilities of course – that the VAT rate has more than doubled (erm, up 2.5x I think?) over those decades. VAT is a tax upon consumption. And all those green levies on windmills etc – subsidies to production. So that’s up too.

It’s true the Labour Share has declined these decades. The Capital Share is around long term levels. It’s the other two components that have risen. And the Wage Share of the Labour Share has fallen because NI rises.

So, where has that fall in the righteous incomes of the workers gone? In tax, to government.

But then the definition of political economy is to do politics, propaganda, not economics, right?