- The Origins of the Crisis
So we can’t adequately explain what happened with either the long view of human nature or with a close‐up on the finance sector in recent years. Nor should we overstate the importance of a handful of now retired operators. The crisis we now face begins to form in outline in the early seventies. Two related developments introduced growing instability into financial markets and the wider economy – the growth of debt and the deregulation of finance.
After a long period of expansion between 1945 and 1970, in which real wages grew steadily throughout the developed world, workers’ compensation levelled off. Average earnings per hour in private non‐agricultural industries in the United States reached $8.99 in 1972 (calculated in 1982 dollars). By 2007 they had risen to $8.30. Sorry, no, they had fallen to $8.30 (again, calculated in 1982 dollars). More widely, in the rich, industrialised world, the percentage of GDP
captured by all workers in the form of wages fell from 75% in the mid‐seventies to 66% in the middle years of this decade.
Output per hour continued to rise – workers still produced more goods and delivered more services, helped in part by information technology. But they weren’t being paid more in real terms for the time and effort.
So who benefited from the weakening share of income secured by labour? Profits and rents have increased by a full third over the last generation, so the first group to benefit from the shift was the very, very rich. The result has been a new Gilded Age, reminiscent of the late nineteenth and early twentieth centuries, with all the exquisite good taste, state of the art sycophancy, and imperial violence that characterised the earlier era.
But the share of GDP paid to workers was also distributed far more unevenly. Managers who successfully drove down wages for the rest of the workforce themselves enjoyed massive increases in wealth. According to Paul Krugman, in 1970 American CEOs made $1.3 million a year ‐ 39 times as much as the average worker. By 1999 their pay had increased to $37.5 million ‐ a staggering 1000 times the average.