In which workers are hurt the most because they already hurt the most

Paul Krugman offers a chart showing that workers in America have suffered a precipitous decline in their share of GDP.  Their share was reasonably high until Reagan came into office when the drop began.  Labor's share of GDP grew nicely again during the Clinton era and then --- talk about cliffs! -- they took a serious dive once Bush came into office.  There was a short spike up until the Bush financial crash and recession took hold.

Long story short: payrolls "lagged behind overall national income" meaning that less money goes into Social Security and parts of Medicare.  We have the money, but the way we do things now is to let that money remain in the hands of the people who least need it while allowing necessary programs -- and people -- to starve.

... If the recent plunge in the labor share is the shape of things to come, what difference might it make?

The short answer is that it will pose problems for the current mechanisms by which we fund social insurance programs; but it will not undermine our ability to afford those programs, and it would in fact be cruel and basically irrational to slash social insurance in response to a declining labor share.

OK, maybe that was too quick. Let me take it more slowly: a substantial part of our social insurance system — Social Security and the hospital insurance portion of Medicare — is funded through dedicated payroll taxes. If payrolls lag behind overall national income, this will tend to leave those programs underfunded given the way the laws are currently written.

But America as a whole won’t have gotten poorer: the money is still there to support the programs, it’s just coming in the form of capital rather than labor income. There would be no problem, at least in economic terms, in continuing the programs by adding revenue from general taxation, maybe even from dedicated taxes on capital income. ...Paul Krugman, Economics and Politics

Of course, the same old gang of opportunists, driven by an epidemic of greed made policy by both the Reagan and Bush2 administrations, would just as soon starve the poor as make up for the decline in payrolls through general taxation.

Cui bono?

... The conventional wisdom is that we should respond to a financing issue caused by rising inequality by slashing benefits, further increasing inequality.

We should keep this line of argument in mind — and when somebody talks about the need to rein in entitlements, we should always ask whose interests, exactly, are being served. ...Krugman