John Plender's article in the FT this morning is first rate: it is an example of macroeconomic analysis that understands that this is not microeconomics extrapolated. It does this using the fundamental accounting equations that are implicit in any macroeconomic analysis. It would be worth it for the first few paragraphs alone, of which what follows are a taster, but I recommend the whole thing.
In the US election the size of the state is the central, feverishly contested issue. So, too, in the political debate in the UK and Japan, where large overhangs of public sector debt make fiscal retrenchment as much of an imperative as it is in the US. Yet in all three countries a fundamental point is missing from the discussion — namely, that the state is hostage in each case to a corporate sector that poses a huge obstacle to public sector shrinkage.
The background is a subtle shift in the relationship between business and the state. Historically, companies have run fiscal surpluses — that is, saved more than they invest — in recession, while going into deficit when they invest during the recovery. In the US and UK this long-standing pattern has strikingly changed over the past economic cycle. Because of a secular decline in fixed capital investment and a similar secular rise in profit margins to exceptionally high levels, business is continuing to save well into the upturn by investing less than the sum of its retained profits. These business savings surpluses are running at about 6 per cent of gross domestic product in the US and 3 per cent in the UK.
This has important consequences for the “fairness” debate because rising profit margins shrink the share of output that goes to labour and, because the rich own shares, income inequality has increased. The effect has been exacerbated by the winner-takes-all bonus culture.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
As economies mature and become more knowledge and services based, it is no surprise to see capital investment levels fall and margins increase. In a factory where a worker stands at a machine stamping out widgets, the relationship between capital and labour is very different to some internet company where the founders and major shareholders own the IP that drives the company. And after a major financial crisis, where many companies ran into capital issues and couldn’t get funding from banks, it is no surprise they are building up cash reserves.
You really don’t look at the real world too often, do you?
Mature societies are “service-based” because their production has moved to lower labour-cost countries.
IE: It [service-industry] is the only game in town.
And even then some of that industry is moving abroad [call centres etc]
The lower wage of service industry leads to increasing amounts of benefits being needed to increase the family income to a liveable income.
The article/opinion below is as valid to the UK as to the country it refers to (USA):
http://theeconomiccollapseblog.com/archives/22-stats-that-show-how-the-emerging-one-world-economy-is-absolutely-killing-american-workers
This strikes me as colonisation of the third world by corporates (multi-nationals) instead of nation states.
Cheap labour for production in the Thirld World and downward pressure labour costs for services in the Developed World.
Throw into the mix tax havens and we have exploitation on a massive scale.
Can someone please explain to me how this unequal playing field can possibly be construed as the operation of market forces in a free market?
Sorry now proof read:-
This strikes me as colonisation of the Third World by corporates (multi-nationals) instead of nation states.
Cheap labour for production in the Third World and downward pressure labour costs for services in the Developed World.
Throw into the mix tax havens and we have exploitation on a massive scale.
Can someone please explain to me how this unequal playing field can possibly be construed as the operation of market forces in a free market?
Because of a secular decline in fixed capital investment
Sorry, forgive ignorance, but what does he mean? Where I come from “secular” is the opposite of “church” or “sacred”.
Almost certainly he either said “sectoral” & his typist typed “secular” or, more probably, he typed “sectoral”, made an error & it was automatically changed to “secular”.
Back in the day, Fleet Street publications had copywriters for things like that. They were all sacked yonks ago.