Friday, March 31, 2006

Alternate Economics: Bizarro World is Here

You know, I'm going to kick in the teeth of the next person who tells me global markets are getting more competitive. This hypothetical person is either A) deluded or B) a lying shithead. Which I know, because unlike said shithead, I have actually read a little bit about economics, including books 1-3 of The Wealth of Nations.

Now, what would Adam Smith say about this?

WASHINGTON (MarketWatch) -- U.S. corporate profits have increased 21.3% in the past year and now account for the largest share of national income in 40 years, the Commerce Department said Thursday.
Strong productivity gains and subdued wage growth boosted before-tax profits to 11.6% of national income in the fourth quarter of 2005, the biggest share since the summer of 1966. See full story.
For all of 2005, before-tax profits totaled $1.35 trillion, up from $1.16 trillion in 2004 and just $767 billion in 2001.
Meanwhile, the share of national income going to wage and salary workers has fallen to 56.9%. Except for a brief period in 1997, that's the lowest share for labor income since 1966.
"It's a big puzzle," said Josh Bivens, an economist for the Economic Policy Institute. "If this is a knowledge economy, how come the brains aren't being compensated? Instead, the owners of physical capital are getting the rewards."
Despite the flood of cash coming in the door, corporations are investing comparatively little in expanding their operations. Capital spending has been below average, especially considering the strength of the economy, the level of profits and the special tax breaks given to boost investment.

Now, I may not remember too clearly, but in a competitive labour market, aren't profits supposed to fall? In fact, shouldn't they fall until the owners of capital have to manage it directly, as a full-time job? I'm sure there's some bullshit excuse people can come up with to explain the ever-increasing wealth disparity in the west between the workers and the owners, but I'm not buying it.

Could there be an explanation for soaring profits while real wages remain stagnant or fall? Could it be that big businessmen are colluding with one another and with their buddies in the government to create a favourable business climate (read: oligarchy of rich bastards).

On a related note, I just finished reading Barbara Ehrenreich's book Nickel and Dimed, about working crappy low-wage jobs and trying to make ends meet. And this morning on CTV, I saw Jan Wong interviewed about how she tried a similar project, getting a job as a maid in Toronto and trying to live on $20 a day, for all expenses after rent, with her kids. They started getting faint from lack of protein, in case you were wondering. Her series of columns on the experience starts running tomorrow in The Globe and Mail.

Which, ironically, is part of a big media conglomerate with CTV, and which no doubt pays its own janitors such crap wages that their kids feel faint from hunger. Not that anyone will appreciate the irony.

We are all such fucking idiots to let this go on.

1 comment:

Brad Spangler said...

"...in a competitive labour market, aren't profits supposed to fall?"

Yes.

Could there be an explanation for soaring profits while real wages remain stagnant or fall?

Yes.

'Could it be that big businessmen are colluding with one another and with their buddies in the government to create a favourable business climate (read: oligarchy of rich bastards).

Yes.

You have just given your readers a free market oriented analysis of statist neo-mercantilism or "state capitalism".

Of course, I wouldn't say that all profits are inherently evil. It's absolutely possible for genuinely innovative businesses to make *temporary* large profits until the rest of their competition catches up with them.

An *ongoing* pattern of large profits by obviously undynamic enterprises is prima facie evidence of forcible restraint of competition, though -- which in turn can only be carried out solely under state auspices. That ain't no "free market". It's state-granted privilege.

As a society becomes more and more thoroughly statist, honest profits will decline as profits based on privilege increase. As a consequence, real economic growth goes into the toilet.

This is how civilizations fall.