“Why would owners of capital raise prices when they’ve increased productivity?” – I skipped some steps. My thought is that increased productivity leads initially to wage increases, but wage increases are always snapped up by producers of things that people need, most notably housing. When I surveyed wages and housing prices across America while job-shopping, I found no advantages to living anywhere–approximately all of the wage increase I would get from working in San Francisco or New York City would be taken back from me in housing costs.

This calculation is different for people who buy a house; they get some of the productivity gains. People who rent get nothing back when productivity increases in their region lead to their salaries being bidded up.

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2. “If we assume that benefits from productivity accrue to the owners of capital rather than to the workers or consumers, we should expect that the result of women entering the workforce will be to increase productivity, and that the owners of capital will capture this productivity gain not by producing more or better goods, but by raising prices.”

I don’t understand what you’re saying here. Why would owners of capital raise prices when they’ve increased productivity?

I like your viewpoint a lot, however. It seems to explain several different things very concisely.

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– In 1960, very few women worked, and those that did had poor salaries.
– If we assume that benefits from productivity accrue to the owners of capital rather than to the workers or consumers, we should expect that the result of women entering the workforce will be to increase productivity, and that the owners of capital will capture this productivity gain not by producing more or better goods, but by raising prices.
– Women entered the workforce mainly in the 1970s; this was also the longest period of high inflation the US has ever had.
– The purchasing power of a family with two workers in 1990 and later was very nearly equal to the purchasing power of a family with one worker in 1960.
– This strongly suggests that benefits from productivity accrue to the owners of capital rather than to the workers or consumers.

A good test of this theory would be to compare historical inflation rates around the world to the rate of women entering the workforce.

The complication is that people are much better off in terms of small consumer goods. I don’t know what the data say, but the people I know have a lot more stuff now than the people I knew in the 1970s. Inflation occurred almost entirely in housing, college, and medical expenses. This was not well-reflected in the Consumer Price Index, making it appear, when using CPI adjustment for inflation, that Americans were getting better off than they really were.

Why were the gains from productivity captured by landowners, healthcare, and universities?

– Doctors developed a spectacularly powerful union, and my best guess is that their dramatic increase in earnings over that period was due to government regulation always enforcing and expanding the monopoly of the doctors’ union. When my father began working in the early 1960s as an engineer, and his brother as a doctor, doctors and engineers made the same amount of money. Now, doctors earn 2-3 times as much as engineers, and surgeons earn 4 times as much. (And before anyone says that rise is to pay for malpractice insurance, read this post showing that typical malpractice insurance bills are only $3000/yr, or $10-$20K/yr for surgeons.)

Other factors in healthcare account for more of the increase than do doctors’ salaries, but I expect they are all attributable to government regulation. Drug costs obviously are.

– The rise in college price was due to the doubling in college applicants from, IIRC, 1965-1975, and that was due not to any sudden increase in the prestige of college, but to the sudden increase in government subsidy for college, in the Higher Education Act of 1965. (I suspect you’d see an increase in college attendance after WW2 due to the GI bill, though smaller, because ex-GIs constituted only a fraction of the population.)

– Warren’s argument might explain why land prices rose, though its relative complexity gives me many bits of doubt.

If we accept Warren’s argument that housing costs increased due to restrictions imposed by education quality, then the obvious conclusion is that the free market would have distributed gains from productivity equally, but the capital owners in sectors with strong government regulation or subsidies were able to capture all of the gains.

Alternately, we could conclude that there was inflation in those sectors, and deflation in all others, because those sectors all missed out on increases in productivity. Land doesn’t become more productive; education hasn’t, as far as we know, gotten 3% better per year; technical advances in healthcare have made it less productive on a per-dollar basis. Market sectors with increased productivity can’t capture the gains from productivity, due to competition; those gains are captured by sectors in which increased productivity is impossible.

The average family may in fact be better off, in that they have more and better consumer goods than they used to. There’s no good way to compare a Playstation 4 to an Etch-a-Sketch and the Rock-em Sock-em Robots. Possibly the biggest gain in quality of life for Americans over the past 20 years has been due to piracy of software, music, and video.

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Federal revenues as a portion of GDP haven’t changed significantly since the 1950s.

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If families now have twice the income of families in the 1970s – who themselves were usually pretty financially secure and happy – then people should be really secure and rich now, right? But Warren meticulously collects statistics showing that the opposite is true. Home foreclosures have more than tripled in the past generation. … Car repossessions doubled in the five years before the book was published. Bankruptcies have approximately quintupled since 1980. Over the same period, credit card debt has gone from 4% of income to 12%, and average savings have gone from 10% of income to negative.

The unstated assumption here seems to be that this is a middle-class (upper middle class?) phenomenon, that the same families who are trying to send their children to the preschool equivalent of Harvard are having their homes foreclosed upon and their cars repossessed. This just doesn’t seem plausible to me. I would guess that credit card debt, bankruptcies, car repossessions, and home foreclosures are all much more common among the poor and lower-class than among the kinds of Americans Warren is profiling.

Here are two alternative possible explanations of the shifts Warren cites: (1) More immigrants (mostly from Latin America) in the past 30-40 years have brought more poor people into this country, people who are more likely to have the kinds of problems above. (2) More lower-class Americans who traditionally wouldn’t have been able to, say, buy a house or get a credit card, are doing so, and then don’t successfully pay off their debt (whether because they don’t make enough or are financially irresponsible).

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