Comments about ‘Robert Bennett: Labor’s GDP share and economic efficiency’

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Published: Monday, June 2 2014 6:07 p.m. MDT

Updated: Monday, June 2 2014 6:07 p.m. MDT

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marxist
Salt Lake City, UT

Well let me see if I understand what the senator is saying. In economics 101 we learn that GDP breaks out as follows GDP = Consumption (what households buy) + Investment (what businesses buy including production equipment) + Government Expenditures + Net Exports.

So the purchases of production equipment by auto plants would bulk up Investment as a percentage of GDP, but that is far from the same as increasing returns to capital, which is of much greater interest and concern.

Senator Bennett does not explain the much higher returns to capital ownership as opposed to the lesser returns to labor. For that we need to go to somebody like Piketty, who is preoccupied with the returns to capital as opposed to the overall rate of economic growth.

According to Piketty when the rate of return on capital greatly exceeds the rate of economic growth, “the past tends to devour the future”: society inexorably tends toward dominance by inherited wealth. Wealth becomes more concentrated. Society becomes more unequal.

Senator Bennett's explanation falls short of what is needful and relevant.

marxist
Salt Lake City, UT

OK, I had forgotten that it is possible to take an "incomes" approach to GDP determination. So with apologies to Piketty maybe I (and Senator Bennett) have made this analysis a little too complicated. An incomes approach could be as follows:

GDP = Returns to capital ownership + wages (union shops) + wages (non-union shops)

Beginning in the early 1970's there began a tremendous shift of labor from union shops to non-union shops, dominated by services. The non-union shops tend to be much lower wage. This has led to a decreased percentage of GDP accounted for by wages.

But as the late Cambridge economist Joan Robinson said at the Tanner Lectures in 1981 - there is no reason to denigrate service work. Service work is on a par with assembly line work. The solution? Organize the service workers. This we should do. Why?

To restore balance to the system. Besides what is the purpose of economic life? Is it to struggle in low wage employment with the wolf at the door constantly, finally collapsing when one's life forces are spent? I don't think so. Unionization is the answer!

pragmatistferlife
salt lake city, utah

Good explanations Marxist.

When I read this my first thought was that it is almost childish to describe labor as manufacturing and then explain away an entire economies labor capital differential with the idea that we just use less labor.

Very disappointing and partisan. This kind of thinking gets us no where.

If I were to get simplistic about this topic I would encourage a discussion that helps bring back value added labor with unique skills and circumstances. This is the situation that requires employers to pay adequate wages and helps lift all.

GaryO
Virginia Beach, VA

Uh huh Mr. Bennet, because machines do so much of the labor now, workers do less, and therefore fewer workers are required . . . and that’s why labor is decreasing as a share of GDP?

That’s just the way it is, huh?

A corollary to that premise is that unemployment is and should be the norm in the United States.

I disagree.

There is more than one way to calculate the GDP, but the one that applies here is the Income Approach:

GDP = Net Income + Indirect Business Taxes + Depreciation

Where:

NI = W + R + i + PR

Net Income = Wages to labor + Rental Income + Interest Income + Profit

The change since the 1980’s is the decrease of labor wages vs increase in profits.

And it’s a direct result of Reaganomics, which gave huge tax breaks to high earners, thereby giving a greater advantage to huge operators. Smaller operations, once a much greater player in providing labor wages, became much less competitive comparatively, and they were forced out of business.

Reaganomics tampered with a system that worked, and left us a mess in its place.

LDS Liberal
Farmington, UT

Oh good grief...

I can only wonder how much $ Senator Bennett was Free Speeched "paid" for writing this article?

Labor Unions CREATED the Middle class Senator,
and the demise of them, is the very reason for demise of the Middle Class today.

FYI --
It was the robber Baron's of the 1800's who imported cheap "illegal" immigrant Chinese labor to build their Railroads to make themselves insainly wealth,
and skew labor wages and lack of safety...

It was the Labor UNIONS who drove out the illegal immigrant labor,
demanded more of the GDP,
demanded better and safer working conditions,

and created the Middle Class.

BTW - as a side note --

The Labor Unions staved off Communism in America,
and
Labor Unions tore down the Iron Curtian and destroyed Communism in Easter Europe...

Why do you think Labor Unions are illegal in Communist China, North Korea and Cuba?

Roland Kayser
Cottonwood Heights, UT

You can explain it any way you want to, but it boils down to this: American corporations are paying their workers far less than they used to and they are keeping the difference for themselves. This results in lower standards of living for anyone who works for a living, and far higher standards of living for the tiny minority of people who control the corporations.

Kent C. DeForrest
Provo, UT

Excellent comments on a clueless editorial. Bennett is basically saying, we've shifted from a labor-intensive economy to a machine-based economy. Get used to it, because there's nothing we can do. Unfortunately, this appears to be the GOP's take on the economy they created (as GaryO so aptly pointed out).

But simply assuming that more and more money should flow toward the owners and controllers of capital and less and less to those who must work to eat and provide shelter for their families is not sustainable even in the intermediate term, forget the long term.

We can certainly turn this around by requiring corporations to hire Americans instead of shipping jobs overseas; paying workers what they deserve (not what a lopsided market dictates); capping CEO incomes; increasing income taxes on upper tax brackets, capital gains taxes, and inheritance taxes; raising the minimum wage to historical levels; and, especially, promoting worker ownership of businesses.

Of course, this all flies in the face of Republican devotion to supply-side dogma (which gave us the mess we have), so we can't expect change until we start voting the plutocratic obstructionist party out of office.

The Real Maverick
Orem, UT

If technology was the reason for so many loss of jobs and middle class, why isn't Finland, Germany, Canada, Sweden, and Australia seeing similar trends?

Technology isn't this death knell that the repubs are making it out to be. Corrupt and backwards tax codes which benefit the rich and the destruction of unions are.

wrz
Phoenix, AZ

Sorry Bennett, but you missed the salient point. It's not that complicated.

Starting about 1986 (and maybe even before) when President Reagan gave amnesty to millions of illegals, immigratants (legal and otherwise) have been pouring into this country providing a dramatic oversupply of labor. The net result... stagnation/deprssion of wages and decrease in labor's share of GDB.

Alfred
Phoenix, AZ

"The Labor Unions staved off Communism in America..."

What? If anything I think it was the US Constitution setting up a government by, for, and of the people.

"Labor Unions tore down the Iron Curtian and destroyed Communism in Easter Europe..."

No, no. That was Reagan who told Makhail Gorbachev to 'tear down this wall.'

"Why do you think Labor Unions are illegal in Communist China, North Korea and Cuba?"

Because those countries have dictatorshipa. Nothing more.

Roland Kayser
Cottonwood Heights, UT

I'd also like to point out that just because 90% of Americans used to be farmers doesn't mean that they got 90% of GDP. That one fails any basic logic test.

Tyler D
Meridian, ID

Senator Bennett is right as far as it goes (does anyone really think that in the future most of our necessities and even many “wants” will NOT be produced through automation?) , but he ignores the more fundamental question – namely, what does a world look like where human labor is not needed for these things?

In other words, will people be able to earn enough to live, let alone flourish, in a world that resembles Star Trek (e.g., with replicators to manufacture pretty much anything)?
I don’t know what the answers are but I suspect they will arise in countries that remain free, democratic and do not allow big business to become a new feudal oligarchy.

But I am also highly skeptical the answers are found in the writings of a 19th century iconoclast who wrote virtually nothing by way of answers (which may explain why when his “answers” were tried in the 20th century they were a disaster).

But I could be wrong…

GaryO
Virginia Beach, VA

Alfred

Perhaps I can help clear up some of your confusion.

LDS Liberal said "The Labor Unions staved off Communism in America..."

How you ask? . . . Labor unions allowed the working man to get a fair wage and work in safer conditions. In nations where labor unions were put down and suppressed, Communism took over because the hopeless situation of laborers gave them no other option than to seek a change in government.

Here, with strong labor unions, employers were forced to provide safer conditions and livable wages. Over there, laborers had no recourse except to revolt against oppression.

When the pendulum swings too far in one direction, it swings back too far in the other direction, sometimes with devastating results.

We need to learn from history. Moderation is the key. We need to avoid excesses, like the kind of horrible governance modern “Conservatives” offer to us.

And yes Ronald Reagan obediently recited the lines written for him. “Tear down this wall.”

He wasn’t a bad actor, but he was possibly the worst President the twentieth century.

Alfred
Phoenix, AZ

GaryO:
"In nations where labor unions were put down and suppressed, Communism took over..."

I think you have it backwards... Labor unions were put down and suppressed by Communist leaders.

"Here, with strong labor unions, employers were forced to provide safer conditions and livable wages."

True... and labor unions, due to obscenely high wages and benefits, killed jobs (and eventually themselves)... employers moved businesses overseas where labor was cheap. Good-bye unions.

"We need to avoid excesses, like the kind of horrible governance modern 'Conservatives' offer to us."

What excesses are you referring to? The size of government? Big government is where Democrats excel.

"And yes Ronald Reagan obediently recited the lines written for him. 'Tear down this wall.'"

All presidents use writers for speeches.

"He wasn’t a bad actor, but he was possibly the worst President the twentieth century."

You're forgetting Jimmy Carter. And, for the current century we have, tada, Barack Hussein Obama.

Esquire
Springville, UT

@ Alfred, in response to the comment that "Labor Unions tore down the Iron Curtian (sic) and destroyed Communism in Easter Europe...", you said "No, no. That was Reagan who told Makhail (sic) Gorbachev to 'tear down this wall.'" Wow. Either Reagan had god-like powers, or that statement is based on a simplistic fantasy. It has to be one or the other. I mean, wow...

@ GaryO, I have to disagree with one thing you said: "[Reagan] wasn’t a bad actor." He was.

Mike Richards
South Jordan, Utah

Some people like to redefine GDP so that they can promote their favorite cause. Wikipedia defines GDP as "Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a year, or over a given period of time."

So, what is "labor's share" of GDP? That's like asking what the local power company's share of GDP is, or the local gas company, of the local water company.

Every product that is manufactured has an associated cost. It has the cost of raw materials, the cost of labor to convert those materials into something of value and other associated costs.

We could demand that all restaurants cook our meals on hot rocks or that all water served to us be hand carried from a communal well. We don't. Why? Because there are better ways to cook our food and furnish us with water. Some people think that labor should go back to 1913 when Henry Ford introduced the assembly line. Why not go back to 1890 and require us all to drive a horse drawn carriage?

wjalden
Cottonwood Heights, UT

Automation and free trade have undeniably been a big part of this story. But there is one more part of the problem Bennett refuses to address, because he is part of the problem: mass immigration.

There are millions of jobs that can't be performed by machines, and which cannot be done in a factory in China. They must still be done in person, in America. Except our government has allowed thousands of employers to import tens of millions non-Americans, legally and illegally, to do these jobs on American soil. If they can't move the job to the foreigner, the government lets them bring the foreigners here, to undermine wages here. As senator, Bob Bennett was fully complicit with that betrayal of the American people.

Nice try, Bob. Thanks for selling us out.

10CC
Bountiful, UT

1) Wages and Salaries make up a smaller portion of the GDP than they used to.

2) Wages and Salaries compose a very high percentage of overall consumer demand.

Let's play this out, let's simulate what this means:

- GDP growth is meager - even with multiple year priming by the Fed - because there is less means (wages and salaries) for consumers to consume.

- Investors & Capital look for opportunities to become more efficient (ie, fewer employees), or they look for demand in emerging markets.

- Consumers (the overwhelming number of people who raise families) are less likely to produce as many children, or even get married to begin with, something the D-News laments about once a month.

- Longer term our flattening consumer spending and lower birthrate mean the GDP will be flat, or possibly decline somewhat. This makes it unlikely that programs like the F-35 fighter program can be fully funded.

- Investors, if you try to get greater amounts of tax revenue from them, will simply move their money offshore.

In my view the Fed's long term monetary policy is producing meager GDP growth; In reality we should be shrinking, modestly, reflecting smaller wages & salaries.

Alfred
Phoenix, AZ

Esquire:
"Alfred, in response to the comment that 'Labor Unions tore down the Iron Curtain and destroyed Communism in Easter Europe...', you said 'No, no. That was Reagan who told Mikhail Gorbachev to 'tear down this wall.'"

I take your point. I had another curtain in mind... rather a wall.

Actually, the Iron Curtain was not torn down at all. How could it have been? It was a figment of someone's imagination.

Mike Richards:
"So, what is 'labor's share' of GDP?"

Labor constitutes the lion's share (probably 80 percent or more) of the cost of goods and services produced. Interest and profit is the rest. And even interest is made up of labor... (bank employees' wages where loans come from).

Even machinery, buildings, vehicles, computers, etc., everything needed to run a business is put together with... you guessed it, labor.

Iron ore is dug out of the ground with labor. It is smelted with labor. Formed into products with labor. And shipped to the end user with labor. Same with fuel from oil.

Of course what American businesses buy from foreigners contains another countries GDP labor.

ordinaryfolks
seattle, WA

Let us all face it. Unless you are a computer whiz, or can find a way to make money in the financial sector, most of us are just out of luck. Oh, well you could inherit money, or marry it...the old fashioned way to climb the economic ladder.

The world became interrelated. Corporate America owes no allegiance to the American public, only the stock holders who expect maximized profit. This has meant outsourcing to cheap labor markets, and twisting the convoluted tax codes to ship profits to cheap tax countries.

Nothing will change. The dominant political philosophy of the US is the free market solution to all our problems. Free markets love globalization. You can outsource any problem to cheap countries. And corporate America owns the government lock, stock and barrel. Nothing to benefit the average person will ever be passed by Congress, the Senate and signed by any President (Democrat or Republican) that does not have the Chamber of Commerce seal of approval (or Koch brothers too).

Get used to it America. The great dream is over.

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