Whats

up with the world economy?

Mark Schwartz, UVA Politics Dept, London 6 Nov 2014
 Global imbalances? (% of capital flows)
80

60

40 Q8+Qatar+UAE
Tai + Kor + Mala + SG
20 Saudi Arabia
Russia
0
Japan

-20 Germany
China
-40 US

-60

-80
Global imbalances, % world GDP
 Wage share in German GDP, %
3 year rolling average 1962-2013
66
Strike wave starts Wage restraint 1
64
Wage restraint 2
62

60

58

56
Concertation
54

52

50
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
 Wage share in GDP, Japan, %
3 year rolling average 1962-2013
80
Export boom + Automation +
Shrinking labor force financialization
75
Post-Bubble
stagnation
70

65

60

55
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
 Contribution of net exports to each
30
countries GDP growth 1995-2009
25

20

15

10

-5

-10
 30
32
34
36
38
40
42
44
46
48
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
China: household final consumption % GDP
Share of US trade deficit (G+S) $ billion
800.0

700.0

600.0 CHINA
Kor + Tai + SG
500.0
UK
EU net G + UK
400.0
GERMANY
300.0

200.0
JAPAN
REST OF WORLD
100.0

0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 % share US trade deficit
100%

90%

80% CHINA
Kor + Tai + SG
70%

60% EU net G + UK

50% GERMANY

40% JAPAN

30%

20%
REST OF WORLD
10%

0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 Cheap China isnt cheap anymore
wing Much Faster in China Than in the U.S.

Wage rates Productivity-adjusted wage rates

Worker production
wages per hour ($) Average US
Worker production
wages per hour ($)
30 30
manufacturing
wages were once
20 20 30x the Chinese
~2.3X

~6X average ~3.2X

~11X
10 10 ~4.6X
~23X

By 2015, closer to
0 0
only 6x
2000 2005 2010 2015 2000 2005 2010 2015
 Adjusted for productivity, US workers
n the U.S.
are cheap(-er) now
Productivity-adjusted wage rates

Worker production At 2.3 x Chinese

wages per hour ($)
30 wages, it makes
sense to bring work
20 back to the US
~2.3X
~3.2X

10 ~4.6X This is already

happening
0
2000 2005 2010 2015
 Oil prices, $ / barrel 1991 2005 2014
140
120 Average price: $81.11
100
80
60
40 Average price: $23.53
20
0
Household debt as % of disposable income
2.00
1.80
1.60
1995 2007
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Canada France Germany Italy Japan United United
Kingdom States
 US consumers coming back?
debt payments as % household income
14

13

12

11

10
Average debt payment to
9
household income: 11.4%
Currently c. 10%
8
virtually'all'developed'economies'(Figure'1).'At'the'same'time'productivity'has'continued'to'rise.'Th
created'a'widening'spread'between'global'supply'and'demand.'
OECD: Falling wage share of GDP
Figure'1:'Wage'share'in'GDP,'%,'1960G2013,'select'economies'and'unGweighted'OECD'average'
Note'that'Germany'preGunification'refers'only'to'West'Germany;'postG1991'is'allGGermany'

80' Germany' France''

75' Sweden'' United'States''
Japan'' Rich'OECD'average'
70'

65'

60'

55'

50'
1960'
1963'
1966'
1969'
1972'
1975'
1978'
1981'
1984'
1987'
1990'
1993'
1996'
1999'
2002'
2005'
2008'
2011'
'
Labor income share in US GDP, %
1950-2012, average period level in pink
domestic'level,'these'new'asset'bubbles'recycled'purchasing'power'from'the'top'10'or'so'percent'
income'distribution'in'the'United'States'to'income'deciles'50'through'90,'who'compensated'for'
The US wage / productivity gap
stagnant'incomes'by'borrowing'to'buy'housing,'health'and'education.''
(index, 1948=100)
'
Figure'2:'Index'of'growth'of'US'productivity'and'median'wages,'1948G2013,'1948'='100'

400'

350'
Wages' ProducTvity'
300'

250'

200'

150'

100'
1948'

1957'
1960'

1969'

1978'

1987'
1990'

1999'

2008'
1951'
1954'

1963'
1966'

1972'
1975'

1981'
1984'

1993'
1996'

2002'
2005'

2011'
'
'
 Investment trends
(GDI as % of GDP, 3 year moving average)
35.0
DEU JPN USA G3 ave. (unweighted)
30.0

25.0

20.0

15.0

10.0
 Median
Median value offbeforetax
amily* income,
family real Uwith
income for families
For all families
S$, holdings
1000s

54

52
Thousands of 2013 dollars

50

48

46

44

1989 1992 1995 1998 2001 2004 2007 2010 2013

Year
Inequality The rich (firms) get richer
 Share of tangible and intangible assets in
Source: Pagano and Rossi, 2009:671
US S&P500 market capitalization, %
100

80

60

40

20

0
1975 1985 1995 2005
Intangible assets Tangible assets
Euro(pe) is not recovering
Euro(pe) is not working
Now what?