Rising Tide Lifts All Yachts

Lyndon Johnson was fond of observing: "a rising tide lifts all boats."

This was pretty true for twenty-five years following World War II. From about 1946 to 1971, income for all income groups tracked very closely with the increase in productivity for the US economy as a whole.

Then something happened. As economist Noah Smith put it in his blog about three months ago, "Something BIG Happened."

From that time to the present, productivity has continued to increase at about the same rate, but hourly wages for workers (adjusted for inflation) remains stuck at the 1971 level. Who gets all the profit from increased productivity? Mostly the top 1% of earners.

In other words, the rule now seems to be: "a rising tide lifts all yachts."  

Noah Smith is puzzled. In a blog post last July, he notes that this phenomenon seems not to have been studied. He thinks it should be.

So do I.

Noah has offered some ideas about concurrent events that might be related - for example, the change from fixed to flexible exchange rates in international commerce. Or possibly the oil crisis. But no one seems to know for sure.