Back in April, I wrote about one of the most troubling mysteries in economics, the falling labor share. Less of the income the economy produces is going to people who work, and more is going to people who own things....Mystery to
Here, Noah, read this: Michal Kalecki, "Political Aspects of Full Employment" (Political Quarterly, 1943). It's even posted at Brad DeLong's site.
It's a feature of capitalism, or a bug, depending on which side one is on. The so-called labor market is rigged in favor of ownership (capital) under capitalism. Capitalism is the economic system that favors capital (ownership) and is naturally suited for oligarchy of the plutocratic sort.
No mystery at all for those not living in ivory towers.
Bloomberg View
Why Workers Are Losing to Capitalists
Noah Smith
A period where the subject nation transitioned much labor to the external sector would exhibit this trend....
ReplyDeleteProfit and the decline of labor’s nominal share
ReplyDeleteComment on Noah Smith/BloombergView on ‘Why Workers Are Losing to Capitalists’
Every economist can know from the Palgrave Dictionary that the profit theory is false (Desai). Or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” In other words: economists have NO idea what the pivot of their subject matter is.#1
It is pretty obvious that without the true profit theory there is no true distribution theory.#2 In order to arrive at the true profit theory, the analysis has to let the false Walrasian microfoundations and the false Keynesian macrofoundations behind and to be based on the correct macrofoundations.#3
For the pure consumption economy then follows:
Qm≡C-Yw, i.e profit Qm is household sector’s spending C minus wages Yw.
Sm≡Yw-C, i.e saving Sm is wage income Yw minus consumption expenditures C.
__________________
Qm+Sm=0 or Qm=-Sm
The business sector’s monetary profit Qm is equal to the household sector’s dissaving. This is the most elementary form of the Profit Law. From this relationship follow some essentials about profit for the economy as a whole:
• The business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income.
• Overall profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior or on markup setting.
• In order that profit comes into existence for the first time in the pure consumption economy, the household sector must run a deficit at least in one period. This presupposes the existence of a credit creating entity.
• Profit/loss is, in the most elementary case, determined by the increase and decrease of household sector’s debt.
• Monopoly power is irrelevant for total profit and affects only the DISTRIBUTION of total profit BETWEEN firms.
• There is no relation at all between profit, capital, marginal or average productivity. Automation affects only the DISTRIBUTION of total profit BETWEEN firms (and countries).
• Profit is a factor-independent residual and qualitatively different from wage income. Therefore, it is an elementary mistake to maintain that total income is the sum of wages and profits.
• It is a Fallacy of Composition to trivially generalize what can be observed in an individual firm. Microfounded profit theory is one big Fallacy of Composition.
The axiomatically correct Profit Law is given for the GENERAL case as Qm=Yd+(I-Sm)+(G-T)+(X-M) and reduces to Qm=(I-Sm)+(G-T) for Yd, X, M=0; Legend: Qm total monetary profit, Yd distributed profit, Sm monetary saving, G government expenditures, T taxes, X exports, M imports.
The nominal labor share l is defined as quotient of wage income Yw and the sum of wage income and monetary profit Qm, that is, l≡Yw/(Yw+Qm)=1/(1+Qm/Yw).
It is obvious now that market power or automation cannot account for a falling nominal labor share l. The MAIN drivers of increasing overall profit have been in the past decades the increasing debt of the household- and the government sector.
Egmont Kakarot-Handtke
#1 See ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741
#2 See also ‘Essentials of Constructive Heterodoxy: Profit’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575110
#3 (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. For a start X=O.