Stagnation of real wages in Western countries – Evolutionary analysis

Discussions about stagnation of real wages are a thorny issue in many discussions online. I think that stagnation is typical of all Western countries, and among many graphs I found this one most instructive as it correlates productivity and real wages. The gap that is rising from the early seventies is discussed by fauceir terms.

Real wages

Though this graph is from Wikipedia, unfortunately the original source (BLS) is unknown.

Usually wages are correlated with productivity, at least it works that way in free market capitalism. If there is a workforce on the free labor market that shows higher productivity, firms would compete to hire it. As higher productivity translates into higher profits firms can offer more salary, and that way wages become adjusted to workforce productivity. If this is not the case as shown in the picture, two reasons come into mind.

  1. There is no real increase in productivity.
  2. There is no real free market

Hypothesis 1: No real increase in productivity

There are difficulties to define productivity nationwide. According to Wikipedia it is easily determined for a single firm.

Productivity is a ratio of production output to what is required to produce it (inputs of capital, labor, land, energy, materials, etc.). The measure of productivity is defined as a total output per one unit of a total input.

But defining productivity of a whole nation is not trivial. (1) OECD defines productivity as work load per GDP. (2) The graphic depicts productivity restricted to major sector productivity. Both methods have their drawbacks.

The OECD method estimated productivity too height as GDP includes unproductive, even destructive money transfers. Usually in a healthy free market society GDP well correlates with overall production output, and also typically of a healthy free market society, there is only as much work force employed as necessary. Under such circumstances the ratio of GDP and employed workforce offers a good measure of a nations productivity. On the contrary an unhealthy market, one full of parasites, will give a distorted impression of productivity calculated by the OECD method.

The major sector productivity also estimates a nation’s average productivity too high. Although the real productivity in major sector firms may have been increased that increase may be eaten up by other sectors, parasitic ones in particular.

Conclusively, a nation’s average productivity can be estimated as a sum of independent units only if the units are acting really independently as typical of a free market. In a highly regulated markets as in all Western countries the whole nation has to be considered as a single unit. The output of such a unit is by contrast to blunt GDP the output of production minus unproductive output which include taxes, subsidies, social transfer, and lobbying costs. There unproductive outputs have to be added at the input side of the productivity ratio. To give the economic analogy of productivity of a single firm. Such a company may only sum up the income generated by selling the product as real output. If the company also improves working condition, this is input not output, but a nation’s GDP includes both.

Given the real calculations of a nations productivity as discussed above, I doubt there is any increase in productivity throughout the Western countries. I’d rather think that the average productivity is as flat or even declining as wages are.

Hypothesis 2: No free market

Admittedly, there is a remaining free labor market in all Western countries (at least the workers are free to choose a better position – employers are not so free any more to fire and hire a better worker), so by the free market mechanism as discussed above, wages should rise with productivity. Why did not?

To explain this we have to distinguish two types of productivity, the overall productivity and the workforce productivity. Of course only workforce productivity is immediately mirrored in wages given a free labor market. If a firm cannot expect a higher output by hiring a better worker it wouldn’t offer a better salary. However sure enough, if the worker is more qualified to operate a machine with better output he or she will be lured by the firm anyway. Thus if not immediately, through intermediate steps of more productive equipment and education, free market competition will translate into better wages. What however if the market is highly regulated?

And the market is highly regulated indeed.

  1. If competitors are not allowed to buy new machines or to launch production of new products due to market regulations they won’t hire workers to do the production. Example: Most of the iPhone production is in China. It would be easy for any other entrepreneur to sell a similar gadget for a better price, and I’m convinced still would be able to pay newly hired Apple workers better wages. But this is unfeasible as government protects Apple’s production by several copyright and patent laws.
  2. If an entrepreneur wants to launch production he or she might be deterred by subsidies or long term contracts granted to competitor. Example: the US automobile industry received such subsidies as well as Boeing and Airbus making it impossible for newcomers to enter the market.

Conclusively, though the labor market remained at least partially free, other market regulation stopped workers opportunities to negotiate.

Summary

As hypothesized at the beginning of this article the stagnation of real wages in the US and other Western countries is due to governmental market regulations.

  1. Governments by inflating parasitic industries and institutions eat up most of the increase in productivity still generated by some major sectors, so nothing is left over for worker’s wages.
  2. Governments prevent free market competition.

That is, instead of ensuring fairness in free market competition governments became participants in that competition themselves. By that measure they evolved back into feudalistic entrepreneurs (as medieval kingdoms) which is why we encounter all the problems typical of feudalism (including the monetary crisis) now.

Conclusively though governments insist that their market regulation are for the benefit of workers, they effectively cause the opposite, which will be even more obvious if raising income inequality is considered.


Creative Commons License

This work by Paul Netman is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.

Fauceir theory is developed and © by Mato Nagel and available at www.fauceir.org.

The two perspectives of group intelligence

Browsing the category intelligence among wordpress blogs, I stumbled over a group intelligence article and following link after link I ended up at an article from Harvard Business Magazine. The quote worth discussing goes:

Drawing on that insight, we advised the center’s manager to revise the employees’ coffee break schedule so that everyone on a team took a break at the same time. That would allow people more time to socialize with their teammates, away from their workstations.

That’s meant to be rocket science from Harvard: A team’s productivity may be increase by increasing coffee break communication. Take a coffee break to let it sink in.

Let’s imagine employees using their coffee breaks to communicate ideas how to demand more coffee brakes (and ultimately more salary for better efficiency). Let’s imagine team members coming up with better drugs to enhance socialization. Vodka for that purpose has highly valued properties, or what’s about qat.

All that is not new of course. Social communication and drugs that enhance it has been used since time immemorial to influence people, to manipulate them to cajole them into doing things that otherwise they would refuse to do with enthusiasm. I reported of beer used to motivated workers at the pyramids. There are more recent examples. Nazi Germany used amphetamine enriched chocolate to enhance bomber pilot’s tolerance to all the destruction and killing that they caused by their planes. Russian red army soldiers were filled up with booze before sending them into a desperate mission.

German pilots

German pilots received special amphetamine enriched chocolate before takeoff to destructive missions in WW2

On the other hand, let’s imagine genius mathematicians like Gauss or musicians like Glinka being forced into coffee breaks to socialize with mediocre teammates. Which improvement would cause this communication?

It is not new of course, geniuses also need a social environment as much as they need a proper biological environment, including food and sex. Gauss found such a favorable social environment as described in this book. Probably, if he had not found so many supporters of his education, he would not have reached that level of sophistication. The same holds true if he were starving.

Discussing the phenomenon of group intelligence two things are inadvertently or intentionally mixed, but there is a fine line between a group being lured by social incentives and a group forming a favorable environment for some genius to develop.

From fauceir perspective it is the question of who enslaves whom. The first is the enslavement of humans by society the second is the enslavement of the society by human minds. Don’t ask which side I prefer to take.


Creative Commons License

This work by Paul Netman is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.

Fauceir theory is developed and © by Mato Nagel and available at www.fauceir.org.

Easter refutation of the Messiah

The faith in a Messiah is ubiquitous. It is common in many if not all cultures. It survived till today, not only in legends and religious scripts. It is even revived in modern literature such as Dune or philosophy such as Marxism or ideology such as democracy. The idea of a Messiah evolved from prehistoric tribal behavior, showed some transformations over human history, and found its solution recently in The Bible. The Easter story in particular.

Jesus Crucifixion

Jesus’ Crucifixion demonstrated that a Messiah fails even if endowed with god-like power.

Roots

The Messiah idea has its roots in prehistoric human social behavior. Humans primeval ancestors lived in compound that were lead by alpha males. Obedience to that leader was essential to that compounds competitiveness, so we may conclude if not even biologically wired there is a strong socially inherited tendency to follow a leading male. In the emerging class societies, the function of the alpha male was substituted by religious or political rulers. No wonder then that the first Messiahs in old scriptures coincided with political rulers.

Diversification

As with growing contradictions among social classes an other type of interpretation of Messiah evolved. While the ruling class still maintained the old ideology of God given ruler being the Messiah, the abused classes suffering from conflicts, suppression, and injustice began to dream of an other Messiah. A new type of ruler who would enforce their interests.

Human thinking caged

Psychologists call it cognitive inhibition. As human upbringing in a family with a strong leader reinforces humans primeval social behavior, there is a perpetual source of new Messiah stories. Some as clumsy as Dune where a single person changes the world. Some others, more realistic about human egoistic behavior, transpose the idea of a Messiah to a group of people. The working class in Marxism and a democratically elected assembly in Western ideologies. None is working for two reasons.

  1. There is no such thing as a human that wont abuse power. That holds for a single person as well as for groups of people.
  2. There is no such thing as a wise decision that all people are complacent about. Neither contradictory interests can be reconciled nor really progressive decisions can be made by mass support.

Despite the growing number of people that create ever new stories of Messiahs and scholars that invent new Messiah theories, wise people found out about its infeasibility some two thousand years ago when they wrote the story about Jesus. Jesus was meant to be a Messiah but failed. The message is clear. As Jesus failed who was capable to muster all the power of God in his favor, every human who cannot muster as much power must fail too.

Unfortunately these rational foundations of human sociology by early Christian scholars remained almost unnoticed. Too strong have been the efforts of ruler, even of the Christian churches, to disguise the original tenet. And also too strong is the desire of humans to believe in something that complies with deeply inherited feelings, however irrational it may be.

Unfortunately early sociologists did not offer a solution to the problem, but they did so for a purpose, for not creating a new Messiah, for not repeating old mistakes. Admittedly progress in society and sociology goes slowly. But what is 2k years in an evolutionary timescale?


Creative Commons License

This work by Paul Netman is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.

Fauceir theory is developed and © by Mato Nagel and available at www.fauceir.org.