Wages gained ground 1945 - 1975, and lost ground 1975 - 2025. In the “glorious 30” (Trente Glorieuses ) years of sustained global growth 1945 - 1975, wages’ share of the economy remained around 50% of the nation’s income. As the economy expanded, wages increased in step with the economy.
Since the mid-1970s, that trend has reversed. Wages have lost ground for the past 50 years. As the economy expanded, wages’ share declined, meaning the economy’s gains flowed to capital rather than wages. (Chart #1 below)
This wealth transfer was non-trivial: $150 trillion was siphoned from wages to owners of capital.
The national debt declined from 40% of GDP to 30%.
Currently it is 120% of GDP.
Financialization took off in the 1980s as unlimited credit for financiers enabled a synthetic boom of corporate takeovers and mergers.
As the Federal-debt-GDP charts illustrates, Federal debt rose faster than GDP as financialization hollowed out the US economy. The acceleration of globalization from 2001 advanced this hollowing out.
The top 10% of US households now account for 49.7% of all US consumer spending: The U.S. Economy Depends More Than Ever on Rich People: The highest-earning 10% of Americans have increased their spending far beyond inflation. Everyone else hasn’t. (WSJ.com)
The problem is that unlike wages, which are broadly distributed, asset ownership is concentrated in the top 10% of households, so “the wealth effect” dramatically boosted wealth and income inequality. So all the synthetic “growth” since 2009 has flowed to the top tier of households as wages’ share of the nation’s income continued losing ground.
Beneath the superficial surface of rising GDP, the policies of inflating debt-bubbles to drive “the wealth effect” have hollowed out not just the economy but society.
The net effect was to load younger generations with debt while funneling the majority of Federal spending to the older generations who also happen to own most of the assets. Since younger workers couldn’t buy assets when they were cheap, few have gained from “the wealth effect.”
By effectively impoverishing the nation’s younger generations, we’ve chosen a demographic doom-loop as marriage and birth rates have collapsed from 2007. Guess what happens when you make starting a family and buying a house unaffordable to younger generations? They no longer start families and have children.
After the economic boom following the end of World War II, the number of young adults living with their parents dropped to a low of 27% in 1960. Since then, this figure has been steadily increasing, reaching 40% in 2000, 47% in 2019, and 49% in 2021.
Despite Increasing Salaries, Gen Z and Millennials Can’t Afford Houses
The average proportion of a person’s income that goes to rent was 25% in 2000, and it’s now 40%.
Overall, the paper found that delays in getting married and having kids account for most of the increase in Gen Z and Millennials living with their parents. But the study focused on the period from 2000 to 2021, during which housing affordability significantly deteriorated. Since 2021, both household income and housing costs have risen, but rent and housing prices have outpaced wage growth.
Is anyone in power paying attention?