Friday, July 26, 2013

The Damage was Done Before 1980

The other day we compared business interest costs and employee compensation. But business interest costs are only part of total interest costs. The blue line here is total interest cost:

Graph #1: Total Interest Cost (blue) and Employee Compensation (red)
The next graph shows the red line as a multiple of the blue line:

Graph #2: Employee Compensation as a Multiple of Total Interest Cost
Looking at that second graph... Employee compensation fell from 6 times the cost of interest (in 1960) to about 1½ times the cost of interest (in 1980).

Turning that ratio on its head, the cost of interest increased from 1/6 of employee compensation to roughly 2/3 of employee compensation between 1960 and 1980. And there it stays.

1 comment:

Greg said...

Hmmm very interesting look at these metrics.

Seems anyone who buys into Friedmans lifetime income hypothesis should be very alarmed by this. If two thirds of your lifetime income is going to pay interest to banks.........?