Compensation As a Percent of National Income Is In Free Fall – Bad, Bad, Bad

Not The Cheerful News One Hopes for the New Year

Paul Krugman, the Nobel Prize winning economist and commentator for the New York Times is always coming up with interesting economic data.  Here is his latest shown in chart form, which is the percent of national income that is made up of compensation.

                                  Compensation as % of National Income

                                                1973-2012

So what does this tell us and what’s the problem.

Well the first thing it tells us is that compensation as a percent of all income is falling, meaning that working people are working for less and that returns to capital are rising.  The implications for this for the economy are staggeringly bad.

1. Because capital is taxed less than compensation, government revenues will continue to be under negative pressure at the same time that government spending, because of the aging of the population is being pushed up.  Result.  Huge Deficits and impetus to cut government spending for the most vulnerable.

2. Because compensation is taxed to provide Social Security and Medicare benefits and returns to capital are not, those programs are going to have difficulty finding adequate funding.

3. Income inequality will increase.  This means lower consumer spending, resulting in lower investment and lower economic growth.

Have a nice new year.  This is just something to look forward to. And notice how things got better under Clinton and then changed.  So thanks George W. Bush administration policy.  Your policies may have ruined things for several generations.