Inflation and class conflict
The CEOs are winning, macroeconomists are noticing?
Where does economic growth go?
I saw this British chart on twitter over my Christmas break, and I was curious what a comparison between Canadian real GDP and real wages might look like. I was skeptical that it would be this dramatic, but I think it’s actually worse.
The chart starts in 2001 instead of 2000 because, well, that’s when the Statistics Canada data series with the average weekly wage starts. And we end in 2019, because average wages during the pandemic got a little wonky - average wages rose substantially in 2020, but only because it was mostly lower wage employees who lost their jobs.
Just like the UK, workers in Canada had higher growth in average wages for the first half, and worse in the second. It’s not an identical trend - Canada still had strong wage growth in oil and gas producing provinces between 2010 and 2014, masking broader labour market weaknesses.
I was also curious what this trend looks like for unionized workers compared to non-unionized since the financial crisis. Real GDP grew by 25% between 2009 and 2019, by no means a stellar performance, but much better than the 7.2% real average weekly wage growth for non-unionized workers, or the 5.1% for unionized workers. (Unionized workers still earn more, their wages were just growing slower at the end of the period, probably at least partly due to provincial wage restraint in the broader public sector.)
CEOs kept raking it in, though
The Canadian Centre for Policy Alternatives (CCPA) does an annual tally of the top 100 highest paid CEOs in Canada, and compares their average salary with that of the average worker. It turns out that 2021 was a great year to be a CEO in Canada.
The average CEO made $14.1 million, a jaw-dropping 243 times the average workers’ salary. That’s the biggest gap we’ve seen since the CCPA started tracking the trend in 2008, and a substantial increase over the previous record high in 2018.
It would seem that the sponges at the top are winning the struggle for a bigger share of everything.
Econ Twitter debates power
A lively twitter debate on inflation and class conflict was instigated by a fairly mainstream macroeconomist, Olivier Blanchard, when he posted a short thread that didn’t sound very mainstream in its analysis:
As many others have pointed out, this has long been the Post-Keynesian position, and it definitely has a political economy ring to it. Many responses pointed to the British economist Bob Rowthorn’s 1977 paper titled “Conflict, Inflation, and Money” - I had hoped to find a free pdf version (no luck!), but it is available online if you have access through school or work.
My former professor, Lars Osberg, weighed in to say that it might actually be worse this time because of the type of economic shocks that we’re facing.
I would argue it could also be better if government stepped up. Blanchard also says the state could play a role - subsidizing energy costs for households - which helps limit the pain of real wage losses, and implementing windfall profit taxes to help cover the cost. He doesn’t think they will, of course, so we’re left with the terribly painful and inefficient solution of Central Bank engineered economic slow-downs.
Former Fed economist Claudia Sahm outlines (and translates) Blanchard’s key points, and ends with some hope that we can move away from the old ways of leaving everything up to the technocrats at Central Banks and their limited (inefficient) tools:
I will look up both of those books thank you!
So I just started an economics class at Algonquin. Textbook by a Bryce McBride. Anyone here know it? Looks like neo-liberal nonsense to me so far and I am not sure how to engage with it.