Friday, March 31, 2006

Friday Afternoon Cake-Cutting

Because every proper blog must have something boring on Fridays I give you a discussion on the way we divide the economic cake in this country:

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.

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."

A puzzle? I don't think so (hint: who is in power?). If productivity growth is outpacing wages and salaries it means that there will be extra profit, a bigger slice of the strawberries-and-cream gateau for the owners of the firms or at least the firms themselves (as they may not pay it out in dividends). Some workers also own bits of firms, of course, which makes the cake-cutting exercize slightly different from a Marxist analysis. But mostly those who own the physical capital are not the same people who are workers, and what this all means, really, is that the rich are getting richer and the poor are working harder for no more money.