A simple breakdown of what's gone wrong

Several puzzles are confounding the Fed at the moment.

  1. Wages aren't growing
  2. Productivity is falling
  3. Growth is stagnant

A friend sent me a simple little blog post that breaks it down. It shows an unexplained divergence in withholding taxes in the past year.

What it does correlate with is y/y GDP.

The solution is something that anecdotal reports have been saying all along:

"The most obvious explanation is the increased employment of low paid workers with lower productivity relative to what we have seen in previous recoveries. Substituting $50 - 100k full time breadwinner jobs with barmaids and waiters is certain to drive down wages (and hence taxes) and GDP as the marginal productivity of each additional new hire is lower than the previous."