Evidence of deflation

From Stock World Weekly: Tomber de Charybde en Scylla

“Consumer spending comprises about 70% of the US GDP, largely coming from the income of working people. Therefore, if our policymakers’ goal is to improve the economy and boost the GDP, it would seem logical to want worker’s incomes to increase. Instead we see a sluggish economy, rising unemployment and labor taking an ever-shrinking share of national income.

Historically, labor has received roughly two-thirds of the overall national income. A 2004 paper by the St. Louis Fed asserts, “The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable relationships in the U.S. economy. As a general rule of thumb, economists often cite labor’s share of income to be about two-thirds of national income—although the exact figure is sensitive to the specific data used to calculate the ratio. Over time, this ratio has shown no clear tendency to rise or fall.” (Labor’s Share – St. Louis Fed)

It appears that the St. Louis Fed was mistaken. As David Rosenberg points out, labor’s share of national income has dropped to 57.5%, the lowest level in over 60 years.”

That is the definition of deflation.  Wages for workers in the US other than C-level executives need to rise to avoid continuing deflation.

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