The Rise of the Marxists

I’ve spent a fair amount of time over the years discussing the conservative myths about government debt, the bond bubble myth, the coming insolvency of the USA, the inevitable US hyperinflation, etc.  In my opinion, these ideas were based on a flawed ideology driven largely by a political agenda as opposed to sound analysis of the monetary system.

As I read through various articles today I see an equally misguided and ideological rage from the liberal side.  For instance, this piece by Matthew Yglesias discusses how he’s veering increasingly towards a Marxist view of the world because he sees the current system as failing.  And then there’s this piece by Henry Blodget discussing how we’ve all been “shafted” by the system.  The rhetoric is the sort of politically charged stuff you expect to read on   Not that there’s anything wrong with that, but it’s usually pretty easy to pinpoint a politically motivated argument when the rhetoric is so extremist.  In my opinion, that sort of commentary takes away from the argument.

The general gist of these liberal arguments (which are becoming increasingly prominent) is to imply that the American capitalist system has somehow failed us miserably and that the only way we can be rescued from the capitalists is to have the government come in on its white horse.  There’s probably some of truth to that.  I’m not an anti-government type, but I do think there should be balance in these discussions.  And historically, the private sector driven economy with a government acting as a facilitator, tends to do us all well over time.  Recent history is an unusual case of economic extremes, but I don’t think it should lead us to believe that the system needs to be scrapped or overhauled.  Could we do a lot of things better?  You bet.  But let’s also remember that things are not nearly as bad as you think.  Let’s take a macro perspective of some of the facts.  Here are some eye popping facts from

1)  The median household income in the USA is roughly $50,500.  Did you know that that is the top 0.27% of world incomes?  That’s right.  The average American is the global 1%.  You think you have it bad?  Most of us in the USA have no idea what “bad” even is.

2)  The average wage in the USA is $26.30 per hour – Meanwhile, the average labourer in Indonesia makes just $0.39 in the same time.

3)  The median household income is $50,500 per year in the USA. It would take the average labourer in Indonesia 68 years to earn the same amount.

4)  It takes you 2 minutes to earn enough for a can of soda. It takes the average laborer in Indonesia around 2 hours for it.

5)  Your monthly income could pay the monthly salaries of 226 doctors in Pakistan.

The right scares us with too much government and the left scares us with not enough government and the failure of capitalists.  But the reality is that life in the USA isn’t nearly as bad as most would have you believe.  Yes, even during the reign of terror of the capitalists since the 1970s we’ve seen our living standards explode.  Most liberals love to cherry pick wage data in the same way that conservatives cherry pick government debt data.  They don’t put it in the proper perspective.  When we actually take the wages in the USA and adjust them for inflation on a per capita basis the picture begins to look pretty different:


You can see the troubles of the last 10 years which is likely where much of the anger comes from.  But when we take a step back the picture doesn’t look so bad.  Our living standards, on a purely financial basis, have almost doubled on a per capita basis since 1960.  We work a lot less for the same amount of goods and services that we could buy in 1960.  Not bad.

You can also see a similar story in the household net worth picture.  Even with a housing collapse and a total subtraction of equity market values (because liberals will inevitably say that the stock market is only owned by the wealthy) you can see that net worth has held up pretty consistently relative to GDP over the years.  That’s a very different picture than the one Yglesias shows us where it looks like our living standards have cratered into some hole.

fredgraph (1)

Anyhow, I’m not here to say the American capitalist system is perfect or that it’s got no flaws and no hardships attached to it.  I am plenty critical of many facets of the current malaise, government policy and private sector malfeasance.  But I think it’s nice to maintain some perspective of how much of a “failure” the American system really is.



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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  1. How dare you suggest for even a moment that we are neither Weimar Germany nor all working for the Triangle Shirtwaist factory. ;-)

  2. If people are jealous of Corporate profits, why don’t they just start buying shares of quality blue chip companies? Guess what, you get to share in that profit!

    Oh wait, they spent all their money on garbage from China, and now they are mad they aren’t getting paid more.

    If you buy more assets than you do stuff, you will prosper.

    People who spend all their money on stuff will never accumulate assets.

  3. So how about overlaying productivity or GDP per capita on the wage chart and you’ll see what people are complaining about. The mere fact that things could be worse doesn’t make our current situation good.

  4. The problem in the US is that the anti-government people have taken over the government to serve their own purpose, and yes, I include Obama in this scam. I believe it is mistaken to include the wealth and income of the median American in this discussion, unless you think there is a link between the government run by the selfish elite and the prosperity of the average American. The sucsess of the US is of course not the result of corrupt policies. Richard Nixon, for example, would be to left-wing and progressive to be elected president today. After Thatcher and Reagan was elected the the infrastructure in the US and UK have deterioated, many cities have become complete slums. The so-called Keynesians and monetarists that have a say in politics today are both neo-classical economists and they hardly are much different from eachother. Mankiw for example is a Keynesian economist, and he belives that deflation during the depression would have been avoided if the FED had targeted inflation.

  5. A good and thoughtful post, Cullen. Many progressives like to point to some of the success stories in Europe as examples of better systems, such as Switzerland, Finland, and Germany. I see these countries mentioned when discussing health care reform, living standards, education, and “green” energy initiatives (to name a few topics). In many cases, I think there are things to be learned (if not copied) from some of those examples. Like so many systems, there are many factors to consider. Geography, culture, weather, immigration, and natural resources (or lack thereof) are just a few important characteristics that add to the complexities of comparing our country with another.

  6. Good post. But isn’t it also fair to argue that the growing income gap in the USA is a concern? I do wonder if the labor class has grown worryingly small relative to the capitalist class. I generally agree that it’s unfair for the average American to whine about their standing in the world, but that doesn’t mean the US system isn’t growing internally imbalanced.

  7. Sorry, but comments like these just further anger people.
    While the investing class gets richer, the median income stagnates (which means the bottom 50 percent get poorer), the cost of living rises and the working class is permanantly downsized — but they are supposed to console themselves by all chanting, ‘Hey, we’re better off than that poor slob in Indonesia.’
    I’m no Marxist, but if capitalism forgets the working classes, it will sow the seeds of its own destruction.

  8. I was surprised that the hourly rate for U.S. workers was $26.30. Then I noticed that it was the “average” wage. A better comparison would be the median wage, similar to the other “median” statistics cited. “Average” is misleading due to the number of very high wage earners in this country. I would think the median number is quite a bit lower.

  9. True, that the average American haven’t fully enjoyed the big gains in productivity of the last 30 years.

    But you should ask “why?”. And the simplest answer is that during this time, Americans have faced increasing competition from workers in foreign countries. Entire new labor markets have opened up, bringing hundreds of millions or even billions of new workers into the global market.
    And because of this new, free-er trade, hundreds of millions of people have moved out of poverty across the world.

    Honestly, I have a hard time feeling sorry for the average American, when their stagnant wages comes as a result of someone else now earning enough to afford 3 square meals a day and basic education and antibiotics for their kids.

    Sure, US income inequality has risen, as the job-outsourcing CEOs get pay raises for saving their company money. But global income inequality has fallen dramatically, and that’s a good thing.

  10. I sense the intentional cherry picking of an optimist. (For example, my USA money goes far less in the USA than it does in Pakistan.) Since time is your ultimate economic measure, and health is mine, how about some global stats of those two?

  11. It is consoling to think of the squalor and disease of poorer nations when I’m deciding whether to go to the doctor or to the grocery store, as I cannot do both this month, even with government assistance. Thanks, Cullen!

  12. American Capitalism? Capitalism allows for failure, we have spent decades bailout losers at the expense of winners. It is a hybrid capitalist-socialist society in this country at best.

    Love your articles on stuff like this CR! I have argued as well, it isn’t as bad in this country as majority believe. It takes hard work to succeed and we are increasingly becoming more lazy in this country thanks in large parts to technology advancement.

  13. So, if all compensation was stagnating in order to lift the rest of the world out of poverty that might be an acceptable trade. It’s not happening that way though, during the same time regular people were stagnating or becoming worse off (needing two incomes now instead of one) the top portion of society has become vastly better off. Sure, I like growing the pie but how you cut the pie matters too.

  14. I’m using financial living standards. You’re using social living standard. They’re two different things and two very different discussions. Since this is a financial blog I tend to focus on the financial living standards. That doesn’t mean social living standards aren’t important, but it’s just not the focus of my definition of “living standards”.

  15. According to Social Security, median wages have almost doubled since 1990 and are up about 15% in real terms. This view of living standards is consistent with the perspective I provided in the real per capita wages chart. Not sure where most other people are cherry picking their data from, but the Social Security Administration is DEFINITELY not getting this wrong.

    I don’t think the “wages are stagnant” view is actually working from a sound foundation. It appears to be based on some cherry picked data set like the chart Yglesias shows in his post. It’s not the full picture.

  16. JE, I agree that such comments anger (some) people, and I agree that there are valid concerns about the wealth gap in this country. Having said that, it’s important for us all to remember that people continue to move up (and down) the income quintiles over time in the U.S.A. I like to point to one of my neighbors as an example that’s not so hard to find. He cuts grass for a living — has his own lawn service. After nearly 30 years of hard work, he has a nice middle-class home with a swimming pool, four rental properties (3 duplexes and one house), and a healthy balance sheet. A classic millionaire-next-door story. I know plumbers, electricians, and HVAC contractors who all went to the local vocational-technical school to learn their trades, then went on (after working for other people) to start their own companies — which are now very successful small companies. I know people who were certified nursing assistants (low paid health care workers, often working at nursing homes) who worked very hard, went back to school and became Registered Nurses, now making a good living. I know nurses that went back to school and are now physican assistants — making as much money as some young doctors.

    I also know people who have fallen from grace (so-to-speak). Stuff happens. My point is that the U.S.A. is still considered the land of opportunity by much of the world — because it still is! Even the “working” class can have a shot at doing well. It happens all the time.

  17. That said, I do actually agree with the view that the system is probably overweighted towards the capitalist class at present. I just don’t think the problem is as gross as many others. It’s a problem, but the country hasn’t been ruined by it and a few simple policy changes would likely go a long way towards fixing it. For instance, we provide benefits for “investment” that is not true investment. For instance, capital gains on secondary markets and dividends are probably grossly undertaxed. Bad economics can be thanked for defining secondary market transactions as all being in the category of “investment” and obtaining lax tax treatment. I generally agree with Buffett’s views on this stuff though he’s not as descript as I am regarding the definitions….

  18. I’d love to see a post on that. Your concept of treating secondary market transactions as “allocation of savings” totally changed my view of “investing”. But it also has important policy implications.

    Sometimes I really wish you’d get more involved in the politics. These types of insights are really valuable and important.

  19. “It’s not happening that way though, during the same time regular people were stagnating or becoming worse off (needing two incomes now instead of one) the top portion of society has become vastly better off.”

    That’s not really a surprise. Since technology and innovation has continued to march forward, and good scientists/engineers are still in high demand, at a minimum you’d expect their wages to keep growing like normal. These aren’t the kinds of jobs that are being outsourced so much, and their wages have kept up with productivity solidly.

    If you look at wage gains by education level over the last 30 years, much of the gains go to those with advanced or graduate degrees. Wages for US-ians without a high school degree has declined.

    But there’s another layer on top of this one, where wage growth has far exceeded productivity growth.. and that probably comes from the CEOs and businesses that drive outsourcing and costcutting.

    Of course, you and I benefit from those cost cuts, as we can buy cheaper goods now, but sure, plenty of the benefit also goes to corporations and their managers, as well as to the new employees in foreign countries. I guess I don’t see the problem with that – it’s the chance to make money that drives innovation and increased efficiency in capitalism. It’s an integral part of what drives progress, even if it feels unfair in the short term.

    And it *is* the short term. Sure, corporate profit margins are at record highs now.. but in time, those will come down. They always do, because high profit margins draw competition, and this brings costs down for you and I even further. Apple and Samsung are starting to get in a price war over smartphones, as we speak – a classic example of this phenomenon.

    So don’t worry, it’ll swing back around. It just takes time. In the meantime, let’s not kill the goose that lays the golden eggs, eh?

  20. In the aggregate, the gap is widening between the income strata, there is less social mobility, young people are struggling to find work and get started.
    There has to be some way of reversing that. The right says, ‘Let them buy stocks!’ and the left says, ‘Let’s give them free stuff.’
    There has to be a middle way, a way in which the rich make less but the poor make more. But so long as working class people are invisible to the banking/investing class, I fear class warfare is inevitable.

  21. Agree. That’s a policy game changer. If we stop defining gambling on stock exchanges as “investment” then the preferred tax treatment suddenly doesn’t look so necessary.

    Cullen, get on it!

  22. While I think it’s important to have perspective of our economic position in an absolute sense, I don’t really think that a comparison of wages of a US person to an Indonesian person is a great one, mostly because it’s not possible for an American to enjoy an Indonesian cost of living on an American salary. It’s all relative.

    And in response to Steve W’s post above in which he makes many good points, I have to respectfully disagree that the US remains the land of opportunity that it has been in the past. Social mobility is declining in the US and I think the UK as well and I think wage stagnation is both real and has scary implications for our society and future. Some people argue against wage stagnation being structural and say it’s a result of (amongst other things) more women entering the workforce from the 70s onward. I can’t remember the arguments specifically off the top of my head but I have some links or articles somewhere where this is discussed. Also should mention that the CBO recently put out a incredibly comprehensive report on the distribution of household income over a 30 year period which is incredibly interesting and insightful reading.

    This is a great post Cullen, thank you. There is a vast middle ground in all of this and I feel like it’s almost completely overlooked sometimes. We desperately need people who are willing to talk about it.

  23. The charts don’t tell an alarming story if we asume a normal distribution of income in the United States. Of course if Bill gates and I were standing in the same room, our average income would look pretty damn good. Unfortualetly we have an extremely skewed distribution of income in the United States and an unacceptably large proportion of our population that has been effectively disenfranchised economically.

  24. Outsourcing is the big bugaboo right now but automation has been relentlessly putting pressure on labor vs. captial. It used to be you could get by with a HS Diploma, then College was ok, now you need a Graduate or professional degree to get ahead. There is a limit to how much education people can get.

    I’m certainly not suggesting we switch to communism, you can see how well that worked out, but we better come up with something or the economy is going to end up looking a lot like a banana republic and I don’t see how that’s in everyone’s best interest.

    I’m a moderate libertarian and a firm believer in capitalism (with a small c) but we can’t just brush aside the obvious concentration of wealth that’s occurring, it’s not healthy for a democratic society.

  25. As to social mobility and the USA not being quite the land of opportunity it once was, I’m probably guilty of citing too many personal anecdotes. I’m also probably more optimistic than many. Having said that, the studies I’ve read about that tracked social (and economic) mobility over time are no doubt a little stale. The Social Security stats that Cullen mentions are pretty current, but we can’t track actual individuals and their movements up and down the income (and wealth) scales thay way. I’d like to read that CBO report you mentioned.

  26. That data actually isn’t interesting at all. It shouldn’t surprise anyone that real wages are flat. After all, wages basically rise with the rate of inflation. That’s econ 101.

    I think what you’re looking for is something showing the wage gap between the top 1% and the median incomes.

  27. There’s always the professional athlete route. There’s a guy from my town (population 50k) who was drafted by a major league baseball team a couple years ago. He got a $2M signing bonus. See, all you have to do is work hard!

  28. Thank you for a balanced view. I am so tired of the 99% vs. 1% retoric, implying that the stagnant standard of living in the US is the fault of the top 1%.
    And that if only we could make the top 1% miserable, all our problems would be magically solved.
    As otherw pointed out, it has much more to do with the increase in global competition.

  29. 1) The median household income in the USA is roughly $50,500. Did you know that that is the top 0.27% of world incomes? That’s right. The average American is the global 1%. You think you have it bad? Most of us in the USA have no idea what “bad” even is.

    2) The average wage in the USA is $26.30 per hour – Meanwhile, the average labourer in Indonesia makes just $0.39 in the same time.

    3) The median household income is $50,500 per year in the USA. It would take the average labourer in Indonesia 68 years to earn the same amount.

    4) It takes you 2 minutes to earn enough for a can of soda. It takes the average laborer in Indonesia around 2 hours for it.

    5) Your monthly income could pay the monthly salaries of 226 doctors in Pakistan

    Crap without context. That is, revenue side is meaningless without considering the expenditure side which when taken together form a picture of the level of standard of living enjoyed.
    Moreover comparing them with countries which frankly bear no comparison offers little to the argument. So in Indonesia ,or Pakistan the average person has a lower standard of living than someone in the US is irrelevant.What is it supposed to imply? That the person in the US is materially no better off than he was 30 years ago is dependent upon how that compares to a similar person in Indonesia? Nonsense.These examples exist independently and frankly it is a disgrace that in a world of such abundance that anybody needs to subsist rather than live. However, enough is simply never ever enough for some so called capitalists so off we head into wealth distribution supported by the argument that only true capitalism can truly be effective in creating wealth. That may well be true ,but frankly in much of the developed world and that is with the US at the very head of the list we don’t have capitalism
    in the truest sense. Much of it has been hijacked by groups who have the leverage to make sure they dictate exactly what shape of “capitalism” we get.
    I spent all my adult life trying to be a capitalist and did very well out of it too,but don’t kid me about this shit. Money talks and govts listen to it and outcomes that result in increasinh skew in wealth distribution are not working for the majority they are very clearly working for the minority.

  30. If Capitol Hill is your audience you’re really going to have to start with the bare basics, I think. ;)

  31. “the person in the US is materially no better off than he was 30 years ago”

    That’s a remarkably bold statement. Do you have any proof that backs it up?

    I used a balance sheet with net worth because I figured someone would complain about using incomes. So you’re not reading the whole post if you missed that part.

    Also, the data on median wages and real per capita wages clearly refutes the idea that living standards have been stagnant for 30 years. Even using the Social Security data since 1990 that I cited earlier shows a 15% increase in real wages. Is there a disparity between the median wage and the top 1%? Absolutely. But does it mean all of our living standards have been stagnant since 1980 or 1960? Absolutely not. The data is all there for someone who can put their ideology aside and try to actually understand it.

    Otherwise, I agree that the system is not perfect, but I think it’s a stretch to describe it as wrecking our lives and leaving us in a state of stagnancy. That’s a bit of a misrepresentation.

  32. Here is the CBO report:

    I read this whole report last summer and made little notes all over it but now I can’t find it anywhere, which makes me think it’s probably in my drawer at work.

    I typed out my last comment just before running out to an appointment and now that I’m home I’ve had a chance to look at the Social Security link that Cullen provided. While I have no doubt it’s accurate, my initial thought is that it doesn’t provide a complete picture.

    First of all, it is only reporting “Compensation subject to Federal income taxes” (W2), which is not going to include all sources of income. The CBO report breaks down compensation into several categories (wages, business income, capital income, transfer payments, etc.) and I seem to remember that the different levels of taxation on the different sources of income (as well as how the different household income percentile ranges reported their income) contributed to the growing inequality. There’s also a really good section on the Gini coefficient, which also points to increasingly unequal income distribution in the US (and the highest levels of inequality of what we would probably consider the Western, developed countries) Anyway, I’ll have to wait until I have the printout and my notes in front of me to try to make a more cohesive point.

    In any case, I’m by no means an expert so if you read it and have a different take on it, I’d love to hear it.

  33. That report seems to confirm what I’ve been saying. I am not saying there hasn’t been disproportionate growth in incomes. I am simply stating that we haven’t seen a sideways or “stagnant” living standard for everyone outside of the 1% for the last 30-50 years.

    The more interesting question is why is this becoming disproportionate to the degree that it is? My guess is that it has largely to do with how we favorably tax “investment”.

  34. The left does NOT say “lets give them free stuff”. That is what the Right claims that the Left says, but the left doesn’t say that. The left wants recognition that there is VAST income inequality, and it comes not because 1% of the country is so much smarter and harder working then everyone else, but because of influence peddling. They get regulations removed that allow companies to profit at the expense of the environment or workers, they fund ad and PR campaigns to demonize social programs and the poor, and they change the tax code to favor themselves. Note that the tax holiday on earned income went away, but that the carried interest deduction wasn’t touched. Even Obama ok’ed that.

    The problems in this country don’t come from the capitalist system, they come from the money-elite who have bought our politicians, get their own judges appointed, and have convinced half the country that there are “takers” and makers”. Capitalism isn’t the problem – but what we have today is crony capitalism or a plutocracy

  35. I think that’s part of it. I seem to remember that the wealthiest people get the majority of their income from sources which enjoy favorable (or zero) tax rates, while everyone else has the majority of their income come from wages, which has one of the higher tax rates. We’ve also continued to have huge productivity gains while incomes have generally stagnated. The gains appear to have gone disproportionally to the top 8% (or so) of earners. At the same time, taxes are currently at the lowest rate they have been over the 30 year period. This is all taxes combined and we know that some taxes are progressive and some are not which is why I agree with you that a lot of the partisan tax arguments cherry pick and misrepresent data to make their argument.

    I definitely think that the US and our deep aversion to taxation at all costs for the last few decades (thanks Grover Norquist!) has overreached in our obsession with low taxes. I agree completely with you that standards of living have been good, but this is unsustainable. We simply can’t enjoy the same standard of living that we have up to this point with our currently very low levels of taxation. And I think we’re nearing the tipping point on this as well (where we’re going to start sliding backwards). I think this is what Warren Buffet is saying also.

  36. You like Cullen’s balanced view and them make a totally unbalanced comment about people wanting to make the top 1% miserable. Does Warren Buffet want to amke himself miserable? And all the liberals who are in the top 1% too? What are you talking about? Can’t we acknowledge that income and wealth inequality are at their worst since just before Great Depression without being accused of idiotic things like wanting to make others miserable?

  37. I tend to think that Rajan’s analysis of the income disparity is closer to the mark that Stieglitz but both have merit. In periods of technological change the proportional benefit awarded to intelligence and education (and connections, but that perhaps always holds) rises. This has undoubtably been the case in the US. The tax structure may have accentuated this, but except for the Clinton and Bush massive reductions in the capital gains tax rate, it isn’t the cause, because the difference in effective tax rate has increased (after the 1986 Reagan tax package) between the top quintile (and finer discriminated groups above that) and the first and second quintile. In other words, if the top groups are paying a relatively higher effective tax rate than the bottom, the tax system is still working in the favor of those at the bottom, even if not by much. Of course, the balance could be far better, but it’s provably not the cause.

    One has to really cherry pick the data to think that, even at the median, we are not better off than in 1990 (or 1970 or 1950). But, there is substantial research that supports the view that for the most part we have little ability to discern real changes over time, what we react to is relative changes. The rich are getting richer relative to the median, the data is indisputable, but that doesn’t provide any logical basis for arguing that the median is declining. However, that’s how people perceive it, because the spread is getting bigger.

  38. The CBO chart that they base that data off of actually shows that median income rose 35% over the 28 year period studied. There is no “stagnant” bottom 80%. There is actually a pretty healthy median income growth. And yes, the lowest quintile has barely budged, but does that actually surprise anyone? Of course, it looks absurd when you compare it to the top 1%. I am not claiming that’s not true, but living standards have not been stagnant for most of the country since 1979.

  39. if USA is worlds nr. 1 economy… why not compare it with Singapore rather? wikipedia states that every seventh household in Singapore owns a wealth of more than a million dollars… I know what you wanna show here, but If you are number one and wanna stay there you do not say… ah I am getting worse every day… but the guy who finished 197th…. I am sooo much better than him :-)

  40. CR, as I see it, the problem with your post is that the op-ed pieces you cite as Marxist are not Marxist at all.

    (1a) Yglesias: “In summary, I’m not a Marxist”!

    (1b) Yglesias quoting Brad Delong: “[T]hat even though the ruling class could appease the working class by using the state to redistribute and share the fruits of economic growth it would never do so.” Actually, KMarx never had a very good theory of the state. He never really theorized the possibility of a Keynesian state that redistributed wealth. That was a 20th century concept and phenomenon.

    (1c) Yglesias: “Marx believed that capital is not a complement to but a substitute for labor.” This is totally incoherent. I have no clue what this means, though if I had to guess, I suppose the article is attempting to summarize Marx’s argument about the introduction of machines to the laboring process (as opposed to Adam Smith’s relatively simple notion of a mere division of labor). Actually, for Marx, the concept of labor itself and the entire laboring process is transformed by the introduction of capital (ie, machines). Marx was the first person to observe the dramatic take-off of productivity due to machinery. This signalled a shift from what he called absolute surplus-value production (via increased quotas and longer work days) to relative surplus-value production (via making wage workers more productive by the application of machinery to the laboring process).

    (1d) Yglesias: “Thus technological progress and capital accumulation that raise average labor productivity also lower the working-class wage.” This, too, is a wrong interpretation of Marx’s theory. Read what Marx actually wrote:

    “Within the capitalist system all methods for raising the social productivity of labour are put into effect at the cost of the individual worker [...] All means for the development of production undergo a dialectical inversion so that they become a means of domination and exploitation of the producers; they distort the worker into a fragment of a man, they degrade him to the level of an appendage of a machine, they destroy the actual content of his labour by turning it into a torment, they alienate from him the intellectual potentialities of the labour process [...], they transform his life into working-time, and his wife and child beneath the wheels of the juggernaut of capital. But all methods of the production of surplus-value are at the same time methods of accumulation, and every extension of accumulation becomes, conversely, a means for the development of these methods. It follows therefore that in proportion as capital accumulates, the situation of the worker, be his payment high or low, must grow worse.”
    — Karl Marx, Das Kapital: Kritik der politischen Ökonomie, 1867.[1]

    As you can see, KM’s version of the so-called immiseration thesis is complex. It states that, “in proportion as capital accumulates, the situation of the worker, **be his payment high or low**, must grow worse.” KM is talking about (1) the concept of alienation (too difficult and abstract to get into here), but more specifically (2) the increase in the rate of exploitation, but where exploitation is defined strictly as the rate of UNPAID LABOR-TIME, not real or nominal wages or standards of living, **relative to the rate of capital accumulation.**

    (2a) Blodget’s post has nothing specifically to do in any restricted sense with the political economy of Karl Marx. After all, the claim in his second point (ie, “One reason companies are making so much money is that they’re paying employees less than they ever have as a share of GDP”) is practically taken straight from none other than David Ricardo.

    (2b) A version of Bodget’s third claim (“the employment-to-population ratio has collapsed”) is indeed a Marxist concept: a capitalist system has the potential to be a victim of its own success in so far as its productivity gains due to capitalist competition renders wage labor redundant, but since adequate wage labor is a condition of demand (and therefore production in the first place), there is a structural contradiction in the economic organization of society.

    Also, I am disturbed by your comparison of U.S. to Indonesian wage workers. Isn’t this a straw man fallacy? Marx’s political economy is not reducible to “standards of living.” A race to the bottom is not in anyone’s interests. Capitalist economies (and their cultures) evolve, change, improve, and become more complex over time. This includes society’s ideas about what it means to reproduce its own standards of living. Since capitalism tends to improve standards of living, a population’s notion of what is necessary to to live also evolves in an upward direction. For Marx, a progressive change in society’s ideas about what constitutes an acceptable standard of living is relative to the capitalist system’s capacity at that concurrent time to provide that standard.

    (3) Your post seems to suggest that the whole issue boils down to the role of government in the society. Actually, communism is a societal condition in which, as Lenin put it most succinctly, the state as we know it, which protects the interests of capital at the expense of labor, is abolished outright. Thus the entire dichotomy of public vs. private would undergo a transformation well beyond what MRealism is capable of theorizing/conceiving.

    To sum, it seems to me this whole argument, from your post to its referents, merely demonstrates how poorly understood Karl Marx’s ideas really are.

  41. millions on food stamps, without healthcare, indebted, living from paycheck to paycheck, unable to retire, horrendous rise in education and healthcare costs and so on…

    does every child born today in the US have the same opportuinity to make a “middle class” live?

    ever thought which way life would take if born into a poor (black) family?

    i applaud Henry Blodget, because he is one of the few Wall Street guys willing to call out the problems while most economists point at useless statistics, massaged by the government.

    how come the country is drowing in debt, if real incomes really rose? (hint: the CPI isn´t for real)

    and the most important question: Why has the capitalist system ceased to function on it´s own? Why does it need ever larger deficits to keep (dismal) growth going?

    Could it just be that the growing concentration of capital in the hands of fewer people means that that it strangles economic activity?
    (to a millionaire an additional $20.000 doesnt make a difference, while a working mom would spend it with full hands on stuff and services)

    I would love to hear your thoughts on that.

    btw: i don´t get why everybody who talks about social imbalances is automatically labeled a Marxist?

  42. Has everyone forgot about Interest Rates?
    Every thing financed is cheaper thanks to low interest rates thus in effect a “Pay Raise”.
    10 Years ago a 30year mtg @ 6% cost you $231,000 in interest.
    Today that same mtg @ 3.5% only cost you $123,000 in interest.
    A savings of over $110,000

    So shouldn’t interest rates also be considerd in the quality of life to income and outlay discussion?

  43. Totally disagree. My experience is that people that outperform do so based on the choices they make – choices to continue their education, choices to sacrifice personal time to excel at work, choices to be committed to success, choices in the professional fields they persue. Highly successsful people are typically more aggressive, work harder, and make very different choices than people that languish. I’m solidly in the Top 1%. I never peddled influence, cheated, or lied professionally to get to my current state. The idea that there is some sort of ruling elite that holds sway over every aspect of life such that they can continuously tilt it in their favor is easy to digest and convenient to believe, but doesn’t hold much water in real life. Bottom line – smarter, harder working, more committed people that choose professions that pay better will make more money.

    By the way, if you’d like a lesson in why it is entirely appropriate for carried interest to be treated as a capital gain, let me know. I’m always happy to educate.

  44. Congratulations on your success, Scott. There is a lot of truth to what you say. On the other hand, it’s also true that …
    1. I have seen many talented, hard-working people fall off the map because of illness or because of changes in ther industry.
    2. A bigger factor than talent and work are the circumstances of your parents. That has become more pronounced lately.
    3. Many talented, hard-working people make oodles of money in the financial services industry because of the current economic rules (which they write) but don’t contribute very much to society. Other talented, succesful people do great work and don’t get paid.
    4. Many people are not so talented and not so driven; what are we supposed to do with them?

  45. JGF … You hit on the crux of the problem there. In baseball, the gap between the salary of a superstar and a minor leaguer continues to widen, just as what happens in the corporate world.
    The baseball union itself is partly to blame. The union could have chosen to represent all baseball players, but instead chose to represent only the major leaguers.

  46. Having recently spent five years living and working in North Africa I can honestly say with all sincerity that most Americans have NO IDEA how lucky they are.

    Few Americans have a clue how fortunate they are to live under a system of government that facilitates the creation and sharing of so much wealth. Even the poorest among us live far better than the vast majority in North Africa.

    When I say “system of government” I am not referring to any specific administration or party or ideology but rather the RULE of LAW. It is an unknown concept in most of the world.

  47. I’ve always thought that employee profit-sharing was the pseudo-socialism solution for making society equitable enough for everybody. That and that most talk about political systems is half-baked.

  48. There are definitely elements of both luck and skill involved in one’s “success”. For people on both extremes of the spectrum luck or skill can play a more important role in where they end up. Obviously, the guy who is born on third base can afford to run a lot slower than the guy born on first base before they both hit home base. But I do think it’s dangerous to downplay the level of effort involved in the lives those two people lead. The guy who starts on first base and gets to home base will ultimately provide much greater value for the world than the guy born on third who crawls home. And of course, you also get the people who are born on second or third who hit home base, go right back to the batting cage and can’t wait to get back out on the ball field for another go at it.

    For the majority of people, who are born somewhere closer to the middle, I think that skill ultimately plays a larger role in where they end up than luck does. And that’s not referring to innate talent. Skill is something that is crafted and obtained over time. We’re all born with a certain level of talent, but some of us harness that talent and refine a skill that we build over time. The will and effort involved in that process plays a bigger role in outcomes than luck, in my opinion.

  49. The problem is too much unemployment and low wages for millions of Americans. Too many children are suffering although their parents are getting some help from the government. Food stamps are being used at an all-time high. Families may have an old TV set, but live on potatoes and beans while they struggle to pay rent. Average income data give a false picture.

  50. Why is productivity going up?
    Because companies are installing more efficient machines, especially computer driven lathes etc.
    So, productivity is going up due to investment of capital. In which case the increased gains of productivity belong to the owner of the capital.

  51. Hangemhi, you are correct, also recent data is surprising, showing more economic status mobility in Europe than the US.

  52. Try to raise a family in the US on $16.71 an hour. and that is well over the minimum wage.

  53. I’ll add that just because your success is correlated with your parents’ success, it doesn’t mean that you didn’t work hard and intelligently.

    Intelligence and work culture runs in families. So, maybe I got ahead by playing on my parents’ success, but more likely I won the genetic lottery – good genes, personality, etc., plus all the knowledge and life lessons that my parents passed down to me.

    Culture and intelligence are probably the most important thing in determining lifelong success.

  54. “Try to raise a family in the US on $16.71 an hour.”

    Or, don’t. That might be a smarter path. Don’t have kids until you’re solidly sure that you can support them.

    And, notably, this is what kids in their teens and twenties are doing now: delaying marriage and having children of their own.

  55. FWIW, I think the professional sports economic system is analagous to our current economic system in many ways.

    * Vast pay gap between major and minor leaguers
    * Owners have caps on player salaries
    * Owners demand and usually receive public funding for venues where their teams play
    * Owners limit competition (e.g. it is impossible to put another franchise in NYC, though the market would clearly support it).

  56. With all due respect, that’s the kind of ‘Let them eat cake’ statement that angers some of us.
    You are saying that half the people in the U.S. should not raise children.
    But yes, young people are delaying marriage and family formation because they don’t have the same employment opportunities their parents did.
    If you track the median wage vs. the cost of college, or even the costs of, let’s say, a Catholic elementary school education, you’d really see how the median wage earner is falling behind.

  57. Hm. There are things we can do collectively, societally, to try to bring up the wages of families, so that they can afford to have kids.

    But on a personal level, I feel it’s irresponsible to have children until you’re pretty sure that you can support them. Most people are good about that, but I have had some friends who intentionally popped out babies without stopping to think about the consequences.

    All in all, it’s not an either/or proposition, and I didn’t mean to present it that way. We can put off having kids *while* we try to fix the problems with our economy.

  58. Note that the much narrower wealth distribution in the 50s to 70s was due to more union members and the much greater number of college grads as a result of all the GIs who got degrees. This all was a recent phenomenon. I think the much higher marginal tax rate (up to 90%) may have also been a factor. The lower purchasing power of the lower to middle class was well offset by the much lower prices of consumer goods from China.

  59. Reaganesque psy-ops to convince the people that they work only as a result of someone wealthier (conflated with better) lending them a helping hand. You are a vassal to the owner of capital. It’s why public works projets are demonized by both sides of the aisle today: they abolish the notion of the wealthy as “job creators”.

  60. One problem with measurement of living standard is that inflation numbers do not include things like health costs and housing. Both of these things eat up way more of our income than 25 years ago, not just in nominal terms but in percent of income

    I also don’t like comparing us to Indonesia cuz it’s like telling a fat person they weigh 60% less on the moon. We don’t live and spend in Indonesia we do that here. Yes America is very prosperous but we never hear anyone telling whining billionaires they are paying les taxes than elsewhere.

  61. Health care is included in the CPI data and Cullen regularly provides his housing adjusted CPI index.

    I also think Cullen used quotes from the link he provided so Indonesia was not his example, but came from the data from the website listed.

  62. Why is that a good thing for the citizens of this nation? Your premise is hogwash. Globalization does not and cannot benefit all parties. Your knowledge of globalized free trade is surely very limited. I suggest you pack up and live amongst those beneficiaries of the policies you support. Delusional you surely are.

  63. Agreed, I’ve tout for a while that this is the way to save capitalism. Employee ownership would go a long way toward addressing CEO pay, wall street excesses and short-term focus, and treatment of employees in difficult times i.e. fewer layoffs.

  64. Sure Scott, 100% of us could be “solidly in the top 1%” if only we tried. Good math. Can’t wait for the lecture on taxes.

    And FYI, there is a HUGE difference between someone “solidly in the top 1%” and the “money-elite” I was referring to. On the other hand, by sticking your head in the sand and claiming that 100% of your success comes solely from you, and refusing to recognize that there are problems in our system now, then you are part of the problem as an enabler of horrible policy – you’ll even give me a lecture on one of the dumbest parts of the tax code (I’m sorry, it is brilliant for some – the money’ed elite who you’re begging me to let you bow down to and give me the lecture they created and you bought hook line and sinker).

    But I wonder Scott, do teachers work less hard than you? How about our soldiers, firefighters, police officers? How about the guy working 15 hours a day breaking his back in the fields, or in construction work? Do you somehow work 48 hours in a 24 hour day? No, I didn’t think so.

    OK then, how would you be faring in this world without all of the above people? The peons that apparently are losers in comparison to your self-brilliance and uniquely hard work? Who built your house? Who is teaching your kids? Who picked your food and who cooked it?

    As you pee on them, your masters are lobbying on Capitol Hill for lower taxes for you, and ending tax holidays for the ACTUAL hardest workers. They are trying to end all Unions, while trying to create a flat tax which would cut your taxes by 2/3’s and their own in half (since they already got their taxes lower than yours since they see you as the peon – its all relative you know).

    I’d go on – but I can’t help clueless. You’re right. You did it all by yourself. No help from your parents, your environment, etc. We can all be in the top 1% if only we tried. LOL