Mark Carney's quite right about the Engels Pause

Mark Carney worries, in a recent speech, about a repeat of the Engels Pause. The vast improvements in productivity from automation in the early days of the Industrial Revolution seemed not to feed through into wages for the workers. In fact, it wasn't until the 1840s that the standard measurements showed a decent enough rise in general wages.

If this were to repeat then there's the possibility of an increased, as then, interest in communism:

Mr Carney has said the growth of technology and expected automation of millions of blue and white collar jobs will result in a poor wage growth for those in work.

He said “Marx and Engels may again become relevant” if technology destroys jobs, decreases wages and increase the amount of inequality, as a new elite of highly skilled workers and the owners of high-tech machines receive the rewards.

One answer to this is that those wages started to rise properly once we'd abolished the Corn Laws that so favoured the rentiers. So, that's our current commitment to unilateral free trade justified then. On the very basic grounds that this is what raises the real wages of the workers, gaining access to the best and cheapest from around the world.

A deeper analysis gives us another parallel. We're not measuring real incomes properly now, as we didn't then either. Producing this very problem being complained about. As is so often true this comes from the very new technologies being talked about - what value do we place, in our income calculations, upon the ability to do these new things? 

What should be the value of Google, Facebook, the new digital services, be in our GDP calculations, those then feeding through into our income ones? We know, absolutely, that we're doing this wrong right now - WhatsApp appears as a reduction in productivity for example. No, really, 200 engineers providing telecoms services to a billion people turns up in GDP and other statistics as a decrease in productivity.

Back to Engels' time:

And there is another group who benefited mightily from North American slavery: consumers of machine-made cotton textiles, from peasants in Belgium able for the first time to buy a rug to London carters to Midwestern pioneers who found basic clothing the only cheap part of equipping a covered wagon.

As with slavery so too with that other part of the same economy, that revolution in cotton manufacture. The people who really benefited were those able to get cheap cotton clothing. Anyone who thinks this wasn't an increase in real income should try wearing woollen knickers for a few weeks.

Part - the only disagreement here being how much, some or all - of our low income growth today is just because of the errors in the manner we count such real income. As is true of how we count those historical incomes that make up the Engels Pause.

A useful thing for us to be doing now is to do the counting correctly so that we've not got that descent into the communism.