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A quick look back at the 1970s

Since our current bout of inflation has everyone thinking about the '70s, let's take a look at what happened back then. Here are blue-collar wages and corporate profits compared to the inflation level (blue line):

Following the 1973 recession, wages grew with inflation but corporate profits boomed. After about three years of this, inflation began to take off.

Here's the same chart extended to the present day:

Throughout this entire period, wages have followed inflation pretty closely. Corporate profits, on the other hand, have dipped during each recession but then boomed shortly afterward. All told, corporate profits have grown at nearly 5x the rate of inflation since 1975. Just since 2020—the bottom of the pandemic—wages have grown 12% while corporate profits have grown 60%.

So tell me again: what needs to be reined in when we're going through a bout of inflation? Workers' wages? Or corporate profits? Or both?

25 thoughts on “A quick look back at the 1970s

  1. jdubs

    There is little support for this mindset. We are 40ish years into the economic model that approaches wage increases and high employment as bad for the economy.
    These are both dangerous because reasons that cant be explained, but it is such common sense for political leaders, economic heavyweights and the opinion leaders in the business/economic media that you dont need to explain why wage increases and employment are bad for America. We all just know that they are.

  2. Zephyr

    The problem is that all of the decision makers are wealthy, only know and talk to wealthy business leaders, and have little real contact with normal people and how they live. It is not surprising they rig the economy to benefit the only people they know.

    1. skeptonomist

      The increasing inequality is the result of a deliberate strategy by Republicans. They get wage-earning white people to support their economic policies by encouraging racism. They have been doing this for fifty years. Do the Republican politicians and their big-money backers really not know what they are doing?

      1. golack

        and for that to work, they need the working class to be upset already.
        Can't afford college for your kid, and those other people might get financial aid too....arrggghhhhh
        Raise minimum wages--so I have to pay more for a hamburger at a fast food joint--never!!!

        1. Vog46

          Here's another factor
          Chart the profits on a per employee basis.
          Things that are muddling this whole thing up are:
          The decline of the numbers of workers available
          The number of NEW industries that have thrived SINCE the 70s (Amazon, Dell, Apple, Microsoft come to mind here)
          And many corporations are making money on stocks that are NOT their own. They are working the markets

          None of the above took place in the 70s
          The economic paradigm has changed and our "old standards" that we used to measure our economy by need to change as well

  3. Jasper_in_Boston

    So tell me again: what needs to be reined in when we're going through a bout of inflation? Workers' wages? Or corporate profits?

    Obviously it is workers' wages that need to be reigned it. They'll just waste any raises they get on booze and lottery tickets. Corporations, on the other hand, create jobs.

  4. mandolin

    There would be more clarity for the average citizen if all reporting about inflation included the info about corporate profits. Like here. It's never done in the MSM.

    1. Salamander

      Good catch! There's a major disparity in economic reporting, focusing too heavily on the stock market. Then business in general. Maybe once in a blue moon or so, a few words about "labor" -- that is, the ever-diminishing, all but irrelevant "unionized labor." Sometimes a strike makes it into the news, if it involves some crucial industry, like coffee.

      But the media is laser-focused on the stock market, which is driven almost exclusively by greed and fear, and is no measure of a nation's economic health, nor well being of its citizens (and the many other non-citizen workers). And why shouldn't they focus on "the market"? It's just a number, freely available. No "research" or "reporting" needed!

      Don't get me started on the Presidential Horse Race (currently in progress, and for the next two years.)

      1. Austin

        Does the Presidential Horse Race ever end anymore? I’d swear a month after Biden was inaugurated, we still had polls of his popularity against Trump’s in the MSM, as if either mattered at all. Since there is no voter recall for presidents, Biden’s popularity mattered not at all until maybe early voting began for midterm elections, when the voters - misinformed as they are about how the gov’t works - tend to blame the party in the White House for absolutely everything Congress and SCOTUS does or doesn’t do. So there were exactly 2 months (mid Sep to mid Nov) in 2022 that Biden’s popularity vis a vis Trump mattered, and there will be 2 more months in 2024 in which it matters again. In the interval between those periods, the MSM showing us Biden’s approval rating is a total horse race with no purpose whatsoever except to serve as a hook for endless “Dems are fcking everything up” stories… which could still be told by focusing on actual outcomes on actual people, but is short handed by the media into “action X is dragging Biden’s number down.”

  5. Joseph Harbin

    Several times in the SOTU Joe Biden said he wants the biggest corporations and the wealthy to pay their "fair share."

    I wonder how much impact his words have on people watching at home. Does the average person have any clue about how much corporate profits have grown over the years in relation to wages? I bet not. Would a simple chart like the second one here be illuminating for a lot of viewers? I bet it would.

    One reason we have political dysfunction is because the public is poorly informed, which allows people to be easily misled. Media is a big part of the problem. But when people hear from government leaders directly, the format is the same. A politician standing in front of a camera and talking. If every speech was JFK's inaugural, that would be fine. But for most presidents and pols, they should hope to be remembered for at least a few days, let alone sixty years. Giving people a few pertinent and eye-opening visuals could be one way to do it. Tell people something surprising and they'll tend not to believe you. Show them instead, and they're more likely to think twice ... or a third time, etc. Maybe you move the needle a few points.

    Last guy who did it with any success was Ross Perot. Wouldn't hurt if more pols (Dems, especially) used a few good, informative charts to educate the public. Don't wait for the media to do it. They won't.

    1. Joseph Harbin

      The suggestion here is part of a larger point that Dems need to do a much better job of informing the people they are talking to. The GOP messaging model is to control all the channels (TV, radio, internet) where people get their news. The Dem messaging model is to hope the media informs the public on what is actually happening. That Dem model needs to be buried. Because the media algorithms tend to work against the Dem cause. Inflation news, for example. When inflation is going up, you'll see wall-to-wall coverage of high prices at the gas pump, etc. When inflation is going down, the media shuts up about overall inflation, but still runs stories on the exceptions. "Have you seen what's happened to the price of eggs?"

      If Joe Biden says inflation is coming down, a lot of people hear it and say, "And I just spent $6.50 for a dozen eggs."

      A chart won't convince everybody, but some people will see that overall inflation is improving even if eggs are an exception.

  6. tinfoil

    No doubt this is a naïve question, but what does the increase in corporate profits mean, i.e. who's benefitting? Presumably corporate profits do not include the salaries, even of the highly paid executives. (A rather brief look at BEA just says it's receipts less expenses before taxes, with certain exclusions.) Some profits can be paid out in dividends, so that would be the shareholders, which no doubt would include some executives. And who's included in the "hourly waves of production and nonsupervisory employees, total private?" So put simply who are we actually comparing in these charts?

    1. skeptonomist

      "Production and nonsupervisory employees" are basically wage-earners in industry and services, what is usually meant when referring to "workers". They make up the majority of persons who earn. The category does not include self-employed persons or managers.

      Profits eventually go to top management and shareholders in one way or another (they are not taxed for Social Security). These days top managers get most of their money from stock options (which is why there is so much buying back of stocks by corporations), not salaries. There are many studies on who has been getting the income, and it is mostly the very top - not just the 1% but the 0.1%, and those people get most of their money from profits.

      1. rick_jones

        And why are executives being compensated in stock rather that straight salary these days? My admittedly fuzzy recollection is that many years ago now, to “reign in” what was seen as excessive compensation the tax treatment of executives’ salaries was changed in favor of pay-for-performance - ie stock-based compensation.

        1. KenSchulz

          Tax treatment is part of the story, another part is the dominance of ‘shareholder value theory’ - that the first, or even only, responsibility of management is to maximize returns to stockholders. Tying executive compensation to stock price is supposed to align management objectives with shareholders’.

    2. Joseph Harbin

      A related question to "who's benefitting?" is "how is this happening?"

      Generally, I think it's a sign of the overall decline of competition in the economy and a reluctance of government to enforce its regulatory authority.

      We're also a more affluent society than many decades ago and price may not be as important to some consumers in some buying decisions and companies take advantage of that.

  7. skeptonomist

    No, wages have not "followed inflation pretty closely", real wages fell severely from the high in 1973 until about 1995. Real wages have increased since then, but at the moment are still below the 1973 value:

    https://fred.stlouisfed.org/graph/fredgraph.png?g=ZW8V

    Wages had kept up with GDP/capita or productivity through US history until 1973.

    https://skeptometrics.org/WageIndex.png

    On the other hand it is not quite fair to give profits without normalization by population or GDP. But it is still a fact that since 1973 most of the increase in productivity has gone to upper incomes, especially the 1%. This is a big change from previous history.

  8. MF

    You are comparing two things that are not properly comparable.

    1. Worker wages can be going up even as hourly earnings of production workers stay constant:
    a. Workers can be moving into other work that pays higher wages
    b. Hours can be increasing

    2. You are comparing an hourly rate with a total. But the US work force has increased in size. Even if the economy stayed totally static except increasing as the workforce increased we would expect profits to increase proportionately to increase in workers while hourly wages stay static.

    3. There is no indication of how much of the profit increase is derived from work done outside the US. You would expect that to increase the wages of non-US workers, not US workers.

    4. There is no indication of how much of the profit increase is driven by work done by non-production workers, especially be increases in the efficiency of non-production workers, especially due to computers. You would expect those increases to bid up the wages of office workers and tech workers but not hourly wages for production workers.

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  10. cmayo

    Also keep in mind that these are profits before taxes - what has the corporate tax rate looked like over time? It's gone done mostly, before going back up slightly, right?

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