I assume "productivity" is something like real GDP/capita but it would be nice if the graph had units.
The productivity/compensation line conveniently starts in 1947 and makes the post-'70s era look unusual. In fact, the baby boom era was unusual -- with the possible exception of the first industrial revolution in Britain (1700s), it is without precedent in history. Two underlying factors are responsible: 1. the destruction of all other industrial nations in WWII (and consequent international demand for the dollar), and 2. cheap energy.
In 1947 the US had the world's only intact industrial infrastructure. This created tremendous overseas demand for our goods and our currency. As reconstruction abroad rapidly succeeded, the demand for the latter began to outstrip demand for the former, and we were all too happy to supply Eurodollars to meet it. By 1972, foreign claims on US gold reserves were totally unsustainable and Nixon unilaterally ended the Bretton Woods agreement.
Lightning struck twice on our shores with a sustained period of unbelievably cheap petroleum, which also ended in the 1970s. Recent work in thermoeconomics suggests that technology improvements are deflationary unless society can increase its gross energy consumption. Today's ICs are thousands of times faster than those of 1980, but they do not cost more. This is an efficiency improvement - a deflationary effect. (This deflation is largely missed by typical macroeconomic measures, which don't handle "hedonic" change well. The classic demo is to let people spend inflation-adjusted dollars in a catalog from 1980, and one from 2011. Nobody buys much from the older catalog.)
Building tract homes by the millions, on the other hand, requires increased gross energy consumption and is therefore monetized and reflected in measures like real GDP/capita. A similar issue exists around funding for "R&D". You can only fund the R. Since 1980, there's been an outright explosion in the number of scholarly publications disclosing promising breakthroughs, but breakthroughs can't penetrate society without energy. They sit on the page.
Today, we are a people harboring postwar expectations in a world of global competition and expensive energy. President Obama's recent speech was, like many he's given before, a populist appeal for a protectionist return to postwar conditions, when a high school diploma and a pulse could confer property ownership. Such measures cannot succeed.*
One of the most important roles of government in industrial society is to subsidize the production of energy. For the past 40 years, our government has sat idle (or even enacted counterproductive policies) while the real cost (EROI) of our energy sources has skyrocketed.
A common claim in connection with such graphs is that changes around 1980 are due to tax policy. I personally favor progressive taxation (and models suggest it can help with income inequality) but to suggest that tax policy is solely responsible for changes seen since 1970 is ignorant at best. And such claims are seldom accompanied by notice that all income quintiles (and all races) have marginally higher real income today than at any time in the past (effects of the great recession aside)... a moderately reassuring fact that would be left out only by someone attempting to tell a story. Psychologists know that income inequality has real, negative effects, so we should try to address it. But we mustn't do anything that would disturb the modest Pareto growth we have.
The productivity/compensation line conveniently starts in 1947 and makes the post-'70s era look unusual. In fact, the baby boom era was unusual -- with the possible exception of the first industrial revolution in Britain (1700s), it is without precedent in history. Two underlying factors are responsible: 1. the destruction of all other industrial nations in WWII (and consequent international demand for the dollar), and 2. cheap energy.
In 1947 the US had the world's only intact industrial infrastructure. This created tremendous overseas demand for our goods and our currency. As reconstruction abroad rapidly succeeded, the demand for the latter began to outstrip demand for the former, and we were all too happy to supply Eurodollars to meet it. By 1972, foreign claims on US gold reserves were totally unsustainable and Nixon unilaterally ended the Bretton Woods agreement.
Lightning struck twice on our shores with a sustained period of unbelievably cheap petroleum, which also ended in the 1970s. Recent work in thermoeconomics suggests that technology improvements are deflationary unless society can increase its gross energy consumption. Today's ICs are thousands of times faster than those of 1980, but they do not cost more. This is an efficiency improvement - a deflationary effect. (This deflation is largely missed by typical macroeconomic measures, which don't handle "hedonic" change well. The classic demo is to let people spend inflation-adjusted dollars in a catalog from 1980, and one from 2011. Nobody buys much from the older catalog.)
Building tract homes by the millions, on the other hand, requires increased gross energy consumption and is therefore monetized and reflected in measures like real GDP/capita. A similar issue exists around funding for "R&D". You can only fund the R. Since 1980, there's been an outright explosion in the number of scholarly publications disclosing promising breakthroughs, but breakthroughs can't penetrate society without energy. They sit on the page.
Today, we are a people harboring postwar expectations in a world of global competition and expensive energy. President Obama's recent speech was, like many he's given before, a populist appeal for a protectionist return to postwar conditions, when a high school diploma and a pulse could confer property ownership. Such measures cannot succeed.*
One of the most important roles of government in industrial society is to subsidize the production of energy. For the past 40 years, our government has sat idle (or even enacted counterproductive policies) while the real cost (EROI) of our energy sources has skyrocketed.
A common claim in connection with such graphs is that changes around 1980 are due to tax policy. I personally favor progressive taxation (and models suggest it can help with income inequality) but to suggest that tax policy is solely responsible for changes seen since 1970 is ignorant at best. And such claims are seldom accompanied by notice that all income quintiles (and all races) have marginally higher real income today than at any time in the past (effects of the great recession aside)... a moderately reassuring fact that would be left out only by someone attempting to tell a story. Psychologists know that income inequality has real, negative effects, so we should try to address it. But we mustn't do anything that would disturb the modest Pareto growth we have.
* Greenspun's comments on Obama's speech are also excellent: http://blogs.law.harvard.edu/philg/2011/09/08/obamas-speech/