The New York Times, April 30, 2007
Last fall Edward Lazear, the Bush administration’s top economist, explained that what’s good for corporations is good for America. “Profits,” he declared, “provide the incentive for physical capital investment, and physical capital growth contributes to productivity growth. Thus profits are important not only for investors but also for the workers who benefit from the growth in productivity.”
In other words, ask not for whom the closing bell tolls; it tolls for thee.
Unfortunately, these days none of what Mr. Lazear said seems to be true. In the Bush years high profits haven’t led to high investment, and rising productivity hasn’t led to rising wages.
The second of those two disconnects has gotten a lot of attention because of its political consequences. The administration and its allies whine that they aren’t getting credit for a great economy, but because wages have been stagnant — the median worker’s earnings, adjusted for inflation, haven’t gone up at all since the current economic expansion began in 2001 — the economy feels anything but great to most Americans.
Less attention, however, has been given to the first disconnect: the failure of high profits to produce an investment boom.
Since President Bush took office, the combination of rising productivity and stagnant wages — workers are producing more, but they aren’t getting paid more — has led to a veritable profit gusher, with corporate profits more than doubling since 2000. Last year, profits as a share of national income were at the highest level ever recorded.
Dear Volt, concerning your comments about flat wages in a good economy, one thing that can be done and should be done is to eliminate inflation. Workers are the last to get offsetting increases against inflation, long after prices have gone up in response to a dollar which has become worth less.
There is no good reason to have inflation. none.
Grimgold
Comment by grimgold — May 3, 2007 @ 9:03 pm