Solidarity Forever (or: The Free Market Roots of Wage Stagnation and Income Inequality)

Or: The Post in Which I Totally Needlessly Use the "Title (Or: Alternate Title)" Convention

So, I was going to wait until after finals to re-start Cheeto Dust, furiously post for two days, realize I have nothing to say, and close up shop all over again - but then, while making lunch, I had the following train of thought, and decided that the mediocre and uninsightful ramblings of a man whose economic training consists of an introductory macroeconomics course at Carnegie Mellon University is something for which the interwebs (or, at least, my zero, err, two readers) can no longer wait!

So, hey, no big secret, but I think these "computer" and "internet" things are gonna be big. Productivity in the last, say, 15-20 years has probably grown pretty f'n astronomically, and pretty consistently so over any sub-period of that timeframe. Yet, at the same time, wage inequality has also grown astronomically, while median income has pretty much stagnated (especially so over the past 8 years). If you want to get an idea of just how much the benefits of the productivity boom have gone to those at the top... well, I don't have the numbers or charts handy, but just go search Matt or Ezra a bit and you'll have no trouble finding them. (Klein Sucks! Yglesias Rules!*)

Anyway, while chipping off bits of my big block of parmigiano-reggiano, I was thinking about the market failure of this all, and how it'd make another good entry for my continuing series: "How to Talk to a Libertarian (If You Must)." As such:

Productivity goes up => Value of 1 man-hour of labor goes up
Value of 1 man-hour of labor goes up *SHOULD* => Cost of 1 man-hour of labor goes up
Value of 1 man-hour of labor goes up & Cost of 1 man-hour of labor stagnates => *MARKET FAIL*

And, thus, the libertarians are chastened, and we all celebrate into the night while burning Ayn Rand in effigy. Huzzah!

Unfortunately, I then realized this factor as well:

Productivity goes up => Cost of produced goods goes down
Cost of goods goes down => Joe the Plumber Factory Worker needs less money to buy a basic bundle of goods
Joe needs less money => Joe's opportunity costs go down (i.e., since Joe needs less money, Joe can willingly take a job that pays less and still get by)
Joe's opportunity costs go down => Cost of 1 hour of Joe-labor goes down.

So, what does all this increased productivity mean? Well, if my one semester of introductory macroeconomics taught me anything, its that People = Pig Iron, and we can model this all with supply and demand curves!

Because one man-hour of labor produces more, one man-hour is worth more, so people will want to buy more man-hours (men-hour?). Ergo, demand curve shifts right!

At the same time, products are cheaper, so people's opportunity costs are down, and they're willing to supply one man-hour for less. Ergo (because I need to be symmetrical, natch), supply curve shifts left! And what do we get? Equipoise!**

So, in other words, as we continue to follow Moore's Law and double our technology every year-and-a-half, the benefits will all accrue to our Capitalist overlords thanks to the magical invisible hands of the free market. Its enough to make you want to go read a Manga adaptation of Das Kapital.***

* This is an inside joke - population: Me. I may use it again in the future. You have been warned.

** Well, realistically, probably not, but close enough for blogging.

*** The Answer? Well, I've got a suggestion...

UPDATE: Relatedly, this. Yet more evidence that Klein sucks, Yglesias rules.

LIKE, A WEEK LATER UPDATE: Right! Supply curve shifts Right! Equipoise in wage, but more people employed! Man, I can't believe I mistyped that...