Hidden Inflation Slows Growth, Holds Down Wages
Meanwhile, the saga between Wal-Mart
The Income Gap
In 1980, wage earnings as a percent of Gross Domestic Income (GDI, the sister concept to GDP) were 49%. In the last GDI report, they were closer to 42%. Meanwhile, corporate profits are up 50% from about 8% of GDI in 1980 to about 12% today. There is no doubt that the income gap between the rich and the middle class is growing.
The Slide in GDP Growth
The accompanying table shows the compounded annual growth rate (CAGR) of real GDP (as "officially" measured) from the bottom of each of the last four recessions to the following peak.
It is notable that the CAGR of real GDP in today's recovery (2.23%) is about half the pace of the recovery from the recession of the early '80s. Note that in each subsequent cycle since 1982, GDP's CAGR has slid more than 50 basis points.
The 'Official' CPI
In the mid-90s, it was determined that demographics would become an issue regarding the cost of social programs like Social Security and Medicare. So, the CPI formulation was changed so as to slow down the "official" rate of inflation, which, in turn, slowed the cost of the social programs.
But there was also an unintended consequence, one not recognized by any politician or the mainstream media today. Because the "official" CPI is widely accepted as "the" measure of inflation, and because "cost of living" raises for most of middle America are based on it, its manipulation over time has lowered the real incomes of wage earners (the middle class) with the resulting negative impact on the CAGR of real GDP, because if the prices of goods and services are actually rising faster than incomes, then aggregate demand is negatively impacted.