Sunday, February 26, 2012

Margins, profits and wages

Read it at Think Progress
Corporate Margins And Profits Are Increasing, But Workers’ Wages Aren’t
By Pat Garofalo

Is there a fallacy of composition operative in firms' decision making that is kneecapping effective demand due to lagging worker incomes and falling real wages in contrast to increases corporate earnings, or can owners' consumption offset this? If it can, is this desirable for society, or even politically sustainable?


dave said...

yeah,i dont think the owners consumption can offset that

Matt Franko said...

This is what happens when our morons enter us into the race to the bottom....

Clonal said...

This dynamic drives is significant proportion of the population into abject poverty as happens in the third world. The typical reaction of the rich is - "even if you take all our wealth and distribute it to the poor, it would not raise them out of poverty"

Often, technically, this is true. However, a wonderful thing happens when you start doing that - distributing the wealth of the rich to the poor by providing them with a living wage job - the economy starts growing, and suddenly wealth flows through the community.

It is not just the "propensity to consume." People who were not productive, or marginally productive, become fully productive, and suddenly the level of well being and happiness rises.

The happiest societies are those (even where the average consumption is low) where wealth disparities are the least.

Tom Hickey said...

Right. Circular flow does wonders, when supply and demand are reciprocal drivers facilitated by distributed exchange.

Rent-seeking and hoarding break the flow, resulting in inequality of income and wealth. When some have a much larger slice than most others, the potential size of the pie is never reached, so everyone is worse off in the end. Another fallacy of composition at the macro level.

Anonymous said...

the right wing endgame is a situation is which the 'maximum productivity' of the workforce is achieved by driving their wages to the absolute minimum whilst the absolute maximum output is forced out of them. In turn the ruling class does all of the consumption on behalf of the rest of society, whilst indoctrinating the workers with the belief that the upper class is not only superior in every way, but also more virtuous.

Tom Hickey said...

Ravi Batra points out that there are four different general mindsets, warrior, intellectual, acquisitive and laborer. Different eras are ruled by different mindsets in a patterned way. In periods where acquisitors rule, the warriors and intellectuals acquire acquisitive characteristics and work for the grand acquisitors, the warriors defending their rule and the intellectuals justifying it on the base of ideology fit to that purpose. Laborers, of course, must also support the acquisitors in that they are wage-dependent, powerless except in numbers, and really don't have much choice.

But in democracies, they do have the vote, which why intellectuals are enlisted to confuse them and get them to accept the rule of acquisitors are not only justified but also the optical system. Warriors are in the background to deal with troublemakers, but come into the foreground as soon as there is significant resistance to the acquisitors' rule. However, at the turning point, it is the warrior mindset, not necessarily represented by the military and security forces, that effects the transition to a warrior age.

Needless to say, the West is now in an era dominated by acquisitors. But this progression of eras is cyclical, and according to Batra, change is brewing. See The Downfall of Capitalism and Communism (1978, 2nd ed. 1990) and The New Golden Age: The Coming Revolution against Political Corruption and Economic Chaos (2007). While I don't agree entirely with Batra, overall his thesis is significant.

Matt Franko said...


In Batra's model with the 4 roles, does he see females as comprising any of those 4 roles.... Warrior, acquisitor, intellectual, laborer... or is his model here male dominated?

Female warriors for instance?


Tom Hickey said...

Batra explains the changing role of woman in the different periods of rule. Basically, woman are treated well in the warrior-dominated rule and are oppressed under the rule of intellectuals and acquisitors. The mindset of laborers is not suited to rule, so when labor is included it is under acquisitors. Four alternativing periods of rule are warrior, intellectual, acquisitor and acquisitor-laborers. Then the cycle begins again with warrior-dominated rule, which requires a revolt against the established order after things have degenerated sufficiently.