"Wages and with that real spending and vicariously GDP has been falling in real terms."
One thing that a student of economics learns from almost day one is that income is the remuneration of the factors of production, that is, the remuneration of labor, land and capital.
Another thing that he or she also learns almost from day one is that the spending of one person is the income of another and consequently that GDP can be estimated in principle with no difference in the outcome either by using the income approach or the spending approach.
Thus, the only way for GDP to be falling in response to a fall in wages is if the other components of spending namely the spending by the landlords and capitalists, the public spending, the net exports or foreign spending and the spending in investment are, when taking all together, either stagnant or falling.
But what are these people telling us? To begin with that public spending , fueled by massive borrowings, is growing out of control and then that those that have land and capital are getting massively richer. As to the other components they are simply muted.
And what happens when people contradicts them with figures showing that GDP has been growing in real terms? They simply say that the figures in question are fake. Either because inflation figures are fake as show by their favorite site called Shadow Statistics, or that the GDP figures themselves are fake, or that people are being employed by the state to do nothing in great numbers, or something similar.
You may raise reservations about the sustainability of the current growth model, which everybody knows that in the medium or long run will be unsustainable. But in order for you to be able to do that you need to leave the clouds and descend into the real world and accept the factual evidence presented to you from credible sources. And more, you must also seek an understanding
of the facts for which there are multiple reliable sources in the internet, if you know where to look at.
You may also point out that the recent recovery, yes there has been a recovery, has not been as fast and strong as the ones before and again everybody else except a few would agree. But an undeniable fact is that the last great recession was not a central bank recession, that is, a recession induced by increases in the interest rates in order to curve excessive spending or inflationary pressures, a policy that is expected to be immediately reversed once the central bank objective has been met. A typical central bank recession was the "recession that Australia had to have".
"For many Australians, the strongest memory of the early 1990s is a number in the high teens.
That was the interest rate they were paying on their home loans, as the government repeatedly sought to apply the brakes to a surging economy.
The official Reserve Bank cash rate peaked at a punishing 17.5 per cent in January 1990".
And you may also say that a return to the growth rates of the past is questionable due to the phenomenon of secular stagnation, a phenomenon being openly discussed among economists with references, among other things, to stagnant wages and hysteresis.
"The idea of hysteresis is used extensively in the area of labor economics, specifically with reference to the unemployment rate.[35] According to theories based on hysteresis, severe economic downturns (recession) and/or persistent stagnation (slow demand growth, usually after a recession) cause unemployed individuals to lose their job skills (commonly developed on the job) or to find them become obsolete or become demotivated/disillusioned/depressed or lose job-seeking skills. In addition, employers may use time spent in unemployment as a screening tool, i.e., to weed out less desired employees in hiring decisions. Then, in times of an economic upturn, recovery, or 'boom', the affected workers will not share in the prosperity, remaining unemployed for long periods (e.g., over 52 weeks). This makes unemployment "structural", i.e., extremely difficult to reduce simply by increasing the aggregate demand for products and labor..."
From the Wikipedia.
Post-2009
This chart compares U.S. potential GDP under two CBO forecasts (one from 2007 and one from 2016) versus the actual real GDP. It is based on a similar diagram from economist Larry Summers from 2014.[11]
Secular stagnation was dusted off by Hans-Werner Sinn in a 2009 article [12] dismissing the threat of inflation, and became popular again when Larry Summers invoked the term and concept during a 2013 speech at the IMF.[13]
However, The Economist criticizes secular stagnation as "a baggy concept, arguably too capacious for its own good".[1] Warnings similar to secular stagnation theory have been issued after all deep recessions, but they all turned out to be wrong because they underestimated the potential of existing technologies.[3]
Paul Krugman, writing in 2014, clarified that it refers to "the claim that underlying changes in the economy, such as slowing growth in the working-age population, have made episodes like the past five years in Europe and the United States, and the last 20 years in Japan, likely to happen often. That is, we will often find ourselves facing persistent shortfalls of demand, which can’t be overcome even with near-zero interest rates."[14] At its root is "the problem of building consumer demand at a time when people are less motivated to spend".[15]
One theory is that the boost in growth by the internet and technological advancement in computers of the new economy does not measure up to the boost caused by the great inventions of the past. An example of such a great invention is the assembly line production method of Fordism. The general form of the argument has been the subject of papers by Robert J. Gordon.[16] It has also been written about by Owen. C. Paepke and Tyler Cowen.[17]
Secular stagnation has also been linked to the rise of the digital economy. Carl Benedikt Frey, for example, has suggested that digital technologies are much less capital-absorbing, creating only little new investment demand relative to other revolutionary technologies.[18]
Another is that the damage done by the Great Recession was so long-lasting and permanent, so many workers will never get jobs again, that we[who?] really can't recover.[15]
A third is that there is a "persistent and disturbing reluctance of businesses to invest and consumers to spend", perhaps in part because so much of the recent gains have gone to the people at the top, and they tend to save more of their money than people—ordinary working people who can't afford to do that.[15]
A fourth is that advanced economies are just simply paying the price for years of inadequate investment in infrastructure and education, the basic ingredients of growth.[15]
And a fifth is that economic growth is largely related to the concept of energy returned on energy invested (EROEI), or energy surplus, which with the discovery of fossil fuels shot up to very high and historically unprecedented levels. This allowed, and in effect fueled, dramatic increases in human consumption since the Industrial Revolution and many related technological advances.
Under this argument, diminishing and increasingly difficult to access fossil fuel reserves directly lead to significantly reduced EROEI, and therefore put a brake on, and potentially reverse, long-term economic growth, leading to secular stagnation.[19]
Linked to the EROEI argument are those stemming from the Limits to Growth school of thinking, whereby environmental and resource constraints in general are likely to impose an eventual limit on the continued expansion of human consumption and incomes. While 'limits to growth' thinking went out of fashion in the decades following the initial publication in 1972, a recent study[20] shows human development continues to align well with the 'overshoot and collapse' projection outlined in the standard run of the original analysis, and this is before factoring in the potential effects of climate change.
