Tuesday, January 15, 2013

profits and wages

There is a weed amongst the debt and deficit rubble.

Since 1947 (when the data was first compiled), corporate profits as a percentage of gross domestic product are now at their highest level, while wages as a percentage of GDP are now at their lowest level. Corporations reacted to the growing threat of their expanding overhead by paring its workers, finding cheaper workers overseas and improving its distribution lines. Workers were laid off, Internet stores replaced brick ones and good, experienced workers were displaced to find work elsewhere at entry level pay. It was not a question of making the economy more efficient -- corporate reorganization did that -- it was a question of where the value accumulated. Business prospered; workers suffered.

The U.S. is now facing a difficult time. The under-employed and unemployed are living in a world of rising disparity; the nation is richer and they are not. This violates a basic American assumption: When wealth grows, all are supposed to indirectly benefit. A richer farmer should imply the city family eats better. The richer pharmaceutical should imply the citizen is healthier. The influence of success is more muted now. Less people benefit from success.

One argument is contentment is cheaper. Like everyone's thirty year old child, there is only so much one needs after a while. People are not buying homes as their parents did, they are renting. Some are not buying cars, especially new cars, and a new industry of "as needed" car rental has emerged. Smart phones reward people. A good TV makes up for a half filled closet and a good monthly cable package costs less than a hockey ticket.

But that may not be enough for politicians who live in a quid pro quo world. One solution is to tax the producers and give money to the non-producers. The problem is that everyone knows, even the politician, this may kill the goose. That money they take and redistribute will not be cycled through the investment world and will be lost to the possibility of long term growth for the sake of temporary and short term consumption. The results there could be even worse.

Regrettably this will require some study by serious and honest people and some hard decisions will have to be made. Who on the political horizon can do that? A congress without any ability to articulate any coherent opinions? A president whose notion of policy is to put yellow stars on the lapels of outrageously rich people?

The question now is: Quo vadis?

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