8/2/15

Why economists for democrats are ignorant ?

In terms of physics, democratic (might be not only) economists are ignorant. I would recommend learning some basic notations from thermodynamics before using any specific units. The physical concepts of ensemble and closed system seem to be too difficult for economic science.

My story is simple.  Through “Economist’s View” I found a graph in The Fiscal Times comparing the evolution of productivity and   hourly compensation.  This figure is not too complicated; it’s rather too misleading.


Democrats claim that money leak from “workers” to “wealthy”, whatever it means. This is not true; this just demonstrates the (hopefully not deliberate) misuse of simple notations. Roughly, hourly compensation is calculated as a ratio of total wage and salaries and total hours worked. Indeed, if to ignore the increase in employment/population ratio since 1950, and especially since the late 1960s, one gets something as shown in the figure below.  Real GDP per capita and labor productivity ($ per hour as reported by Total Economy Database borrowed from the Conference Board website) follow similar paths. Wages and salaries (as published by the BEA) divided by employment (same database) deviate from these two curves since the 1970s, as in the above figure. 

The next graph shows the ratio of employment and total population since 1950. This ratio has been increasing from the 1960s. Effectively, more and more people are involved in real economy, but unfortunately for them they share the same real GDP. On average, one person gets smaller and smaller share of the cake  - and we see that compensation per hour increases slower than GDP per capita and productivity.




When compensated for the difference in the total population and employment growth, the green curve is back to its true position.  Rich do not rob “workers”. Instead the employment has been increasing over time. In that sense, declaring the decrease in hourly compensation as evil, democratic economists are strongly against increasing employment, i.e. against workers.  



Summary
Never normalize values to fluctuating portion of a closed system. This always gives a biased (wrong) result.  Also, it is always a formal mistake and negative mark on exam (in physics). 


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