I work in real estate which is heavily dependent on rising wages for continued appreciation. Often I wonder if this is a dangerous assumption, or if wages can truly continue to go up and up. Are there any reputable theories of capitalism that result in long term wage stagnation?
My take on this would be to differentiate between nominal and real income. Nominal income, i.e. the number of dollars (or any other currency unit) you earn, can rise pretty much indefinitely simply as a result of inflation. Countries with currencies that have existed (and subject to a number of currency reforms, of course) for centuries are good examples for that: There are many reported instances from England, for instance, where entire towns and villages were sold from one feudal lord to another for a few dozen or hundred pounds which would have been considered a princely sum back then.
Another issue is whether real income, i.e., the quantity of goods you could purchase with your income, can rise forever. This is, as far as I can tell, disputed; environmentalists, in particular, claim that indefinite growth is impossible (hence the title of the famous Club of Rome study, Limits to Growth). It may become one of the big debates of the 21st century.
Moved to IMHO from General Questions.
samclem, moderator
An expanding, capitalist economy does provide for a continuing expansion of total wealth (as differentiated from money). However, that wealth is cut by the number of people operating inside that economy. If population expands faster than wealth then average income/wealth/assets can decline even if the economy is expanding at a good clip.
On the other hand, there’s pretty good evidence that wages as a whole haven’t gone up in real terms for up to 30+ years. The challenges faced by the United States from both internal structural challenges and external competition has put the majority of Americans on a treadmill in terms of wages. It’s an issue that needs more thought than it’s being given at the highest levels.
In additional to real vs nominal wages and wealth vs money, I think you have to talk about standard of living, as well. Many people with zero or negative net worth today arguably have a higher standard of living than people with zero net worth thirty years ago.
Can’t argue that. Though a lot of that is in goods and services not available 30 years ago and therefore more a result of societal development and not income growth.
I think the main point of the whole “standard of living” side of the argument is that “standard of living” measurements are what we should really care about, and that it doesn’t really matter if people are accumulating more wealth objectively or not. Why does it matter if wages/wealth is stagnant for a huge percentage of the population as long as their quality of life is improving year after year because of new technology, social programs, etc?
That’s not necessarily an argument I’d like to make, but I think that’s the gist of it.
Or maybe it’s an argument for redefining how we measure wealth growth from decade to decade. Even though a PC or a smartphone or high speed rail availiability or whatever it is that’s new in decade Z that wasn’t around in decade X or Y might only be worth $N, maybe the very fact that it’s new and was unavailable should count as growing wealth even if that worth was just shifted from other things I had back in decade Y with no real “overall” growth in my wealth.
Isn’t wage increase predicated on increases in automation, robotics, technology and other devices that increase the productivity of workers? If so, those should continue until we reach a post scarcity world or until we reach a point where raw materials are too finite and we aren’t able to innovate ways to get around shortages.
If you’ll take a look at the graph in my link, above, you’ll see that productivity is up nearly 30% since 2000 while wages have only grown 6-7% over the same time.
drewtwo99, I don’t necessarily disagree with you except with your use of ‘accumulating wealth’. While people are seeing increased goods with the development of technology and such, fewer and fewer people are actually accumulating wealth. Instead, they live check to check without saving. It leaves them more vulnerable to pullbacks then otherwise.
Wages for the bottom 90% have only gone up 6-7%, wages for the top have gone up drastically. So we are getting wealthier, it is just that the wealth is collecting at the top. GDP is still growing, it is just an uneven growth and has been since the mid 1970s.
I work in commercial real estate and I don’t think infinitely rising incomes is an assumption of any lease income based investor I have dealt with re appreciation. The main leverage they seem to want is they are looking for “deals” vs blue chip net leased properties is to purchase a deal from a distressed seller or some poorly managed or under leased asset and make it more productive.
Re home buyers I don’t do residential but I don’t think that all that many residential realtors (in most markets) are banging the “appreciation” gong all that heavily these days re home ownership.
Wasn’t one of the main causes of the last real estate boom and crash the fact that income was NOT rising as fast as residential real estate prices?
Home prices went sky high but incomes never did which in reality should mean people just can’t afford them period. So banks invented ways for people to afford them. Subprime mortgages anyone?
Very arguably. It might be nice to ask these people if they are feeling like they have a high standard of living instead of telling them that they are better off. When I hear conservatives say stuff like this, I’d like to take them to an encampment of people who are homeless from losing their jobs, and letting them bray to those poor guys about how good their lives are. Alas, the homeless are probably more moral than the conservative, and they just laugh at his ass.
I grew up in the '50s. I didn’t feel the least bit deprived from not having a cellphone, flat screen TV, or computer. What I did have was the stability from my father being pretty sure his job would be there next year. I think a lot of people today would give up a few toys for more income and more job security.
Please don’t fall in the trap of saying that the poor slob in the ghetto is better off than an ancient king because he has a cellphone and a TV.