Adam Ramsey says we are seeing “the biggest transfer of wealth from ordinary people to the mega-rich that we’ve seen since the Enclosure Acts”.
I suspect there’s an element of hyperbole here, but he has a point: real wages have fallen in the last year, even though overall GDP is up.
What’s not appreciated here is that this is closely related to another key economic fact - that capitalists are not investing their profits.
To see this, just remember the elementary national accounts arithmetic. GDP is equal to consumer spending (C), government spending (G), investment (I) and net trade (X-M). It is also equal to the sum of incomes wages (W), profits (P) and taxes (T), which means:
C + I + G + (X-M) = W + P + T.
Rearranging this gives us:
W = C + (I-P) + (G-T) + (X-M)
The interesting thing here is the (I-P) term. This tells us that wages grow if investment rises relative to profits. This is common sense; if capitalists invest, the demand for labour grows. But in recent years, capitalists have not been investing but have instead hoarded their profits.
This is related to another fact underpinning workers’ raw deal - the global excess supply of labour created by the entry of China and India into the world labour market. This excess supply bids wages down which, ceteris paribus, raises profits. But it also makes the UK an unattractive place to invest in low-wage intensive projects. Global cheap labour is thus one factor - of many - behind the fall in (I-P).
Now, you might think that this identity opens up a case for expansionary fiscal policy; a rise in (G-T) can offset the depressing effect of the rise in (I-P).
Not necessarily. Even if we ignore the anti-Keynesian points (that fiscal policy might raise imports and/or saving), there’s a problem here, evident in my chart.
This shows that the share of wages in GDP is, if anything, negatively correlated with the share of public spending in GDP. For example, government spending has soared since 2000-01 but the wage share has fallen.
Big government, on its own, is not necessarily in the interests of workers, at least vis-à-vis capitalists - or, at least, it's not so strongly in workers' interests as to offset countervailing adverse influences.
This is consistent with both pro- and anti-Keynesianism. To pro-Keynesians, it’s because the higher aggregate demand caused by loose fiscal policy also helps to raise profit margins. Yes, this improves wages to the extent that it increases the size of the economic pie, but it doesn’t increase labour’s share of that pie. To anti-Keynesians, it’s because loose fiscal policy can crowd out capital spending, so the pie doesn‘t even increase.
In the case of balanced budget increases in spending, it’s consistent with what we know about tax incidence: that this often falls upon workers, not capitalists.
For my purposes, though we don’t need to adjudicate here. The point is that loose fiscal policy and big government are not, on their own, enough to improve the fortunes of workers relative to capitalists.