The "Net Worthless" Recovery Hits Peak Marxism

Tyler Durden's picture

Back in June 2011, Zero Hedge first pointed out something very troubling: the labor share of national income had dropped to an all time low, just shy of 58%. This is quite an important number as none other than the Fed noted few years previously that "The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable relationships in the  U.S. economy. As a general rule of thumb, economists often cite labor’s share of income to be about two-thirds of national income—although the exact figure is sensitive to the specific data used to calculate the ratio. Over time, this ratio has shown no clear tendency to rise or fall." Yet like pretty much every other relationship in the new normal, this rule of thumb got yanked out of the socket, and the 66% rapidly became 58%. This troubling shift away from the mean prompted David Rosenberg to say that "extremes like this, unfortunately, never seem to lead us to a very stable place." Which is why we are happy to note that as of last quarter, the labor share of income has finally seen an uptick, and while certainly not back at its old normal, has finally started to tick up, which leads us to ask: have we passed the moment of peak Marxism of this particular period in US history?

And while we wish we could say the answer is yes, which would be predicated by more income, and thus, wealth finally shifting back in favor of laborers instead of owners of capital, or those who solely benefit from Fed policy over the past 4 years, the answer is that on an absolute basis there has been no improvement in terms of actual disposable income. The following chart from Bank of America showing the Net Worthless-ness of us consumers says it all.

And from BofA:

The recovery in the stock market has been partly offset by the continuing drop in home prices. In the standard life cycle model of the consumer, households attempt to build their net worth to cover there future spending needs, particularly for retirement. During the asset price boom, the ratio of net worth to income surged, setting up the baby boom generation for its looming retirement. The crisis pushed the clock back to the mid 1990s. The recovery in net worth in the last three years has barely outstripped income growth, leaving the ratio deeply depressed.

In other words, while those of a relativistic bent may assume that in order to preserve the game theory equilibrium so stretched out of place by recent policies  benefiting solely the capital gatherers more wealth is finally being ceded to laborers, the truth is that on an absolute basis the Fed's policies to benefit just one class of people is starting to fade. In other words: 99%ers rejoice - your lot in life is not any better, but at least the 1%ers are starting to sweat a little more. If even purely metaphorically.