Extolling the Corporate Squeeze of Workers?

I don’t mean to beat up on Spencer at Angry Bear, who has provided an interesting set of comparisons on the perennial question of many investors, “Whither the stock market?”

But one section of his discussion, precisely because it is such conventional thinking, is an illustration of how the blind pursuit of “maximizing shareholder value” is not all it is cracked up to be:

The recent productivity report received much attention. But I did not see anyone point out that the spread between nonfarm corporate prices and unit labor cost was 5.25%, the widest spread on record.

This spread is the single most important variable driving corporate profit margins and implies that you should expect major positive earnings surprises.

Yves here. Translation: employers are continuing to squeeze down on workers to improve their margins. And the US has been pursuing that strategy for some time, of shifting the composition of GDP growth away from increases in worker incomes (via hiring and/or paying them more) to increases in corporate profits. The shift was dramatic in the last supposed expansion; it was called a “jobless recovery” for good reason. In every previous postwar growth period, the labor share of GDP growth was never less than 55% and had averaged not much less than 60%. In the pre-crisis expansion, it plunged to 29%.

Before some readers contend that this pattern is inherent to the “maximizing shareholder value,” let’s start with one consideration: strategies that focus on that goal actually do less well than ones that pursue broader aims. John Kay notes in a 2004 Financial Times article (sadly, no longer available on line):

Paradoxical as it sounds, goals are more likely to be achieved when pursued indirectly. So the most profitable companies are not the most profit -oriented, and the happiest people are not those who make happiness their main aim. The name of this idea? Obliquity….

Obliquity is characteristic of systems that are complex, imperfectly understood, and
change their nature as we engage with them…..

Obliquity is equally relevant to our businesses and our bodies, to the management of our lives and our national economies. We do not maximise shareholder value or the length of our lives, our happiness or the gross national product, for the simple but fundamental reason that we do not know how to and never will. No one will ever be buried with the epitaph “He maximised shareholder value”. Not just because it is a less than inspiring objective, but because even with hindsight there is no way of recognising whether the objective has been achieved.

For most of the 20th century, ICI was Britain’s largest and most successful manufacturing company. In 1987, ICI described its business purpose thus: “ICI aims to be the world’s leading chemical company, serving customers internationally through the innovative and responsible application of chemistry and related science. “Through achievement of our aim, we will enhance the wealth and well-being of our shareholders, our employees, our customers and the communities which we serve and in which we operate.”….

In 1991, Hanson, the predatory UK conglomerate that had successfully acquired and reorganised sluggish British manufacturing businesses such as Ever Ready and Imperial Tobacco, bought a modest stake in ICI. While the threat to the company’s independence did not last long, the effects were galvanising. ICI restructured its operations and floated the pharmaceutical division as a separate business, Zeneca. The rump business of ICI declared a new mission statement: “Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base.”….

ICI made the opposite shift – from a grand vision of the responsible application of chemistry to a narrow concentration on established, successful activities. The aim of bringing benefit to a wide range of stakeholders was replaced by the specific objective of creating shareholder value from narrowly focused operations. The company translated this into an operational strategy by disposing of the company’s interests in bulk chemicals to acquire a niche group of speciality businesses: ICI, once the main supplier of chemical products to one third of the world, was reinvented as a smells company.

The outcome was not successful in any terms, including those of creating shareholder
value. The share price peaked in 1998, soon after the new strategy was announced.
The decline since then has been relentless. After two successive dividend cuts the
company was ejected in early 2003 from the FTSE 100 index, the transition from
industrial giant to mid-cap corporation had taken only 12 years…..

Obliquity gives rise to the profit -seeking paradox: the most profitable companies are
not the most profit -oriented. ICI and Boeing illustrate how a greater focus on
shareholder returns was self -defeating in its own narrow terms. Comparisons of the
same companies over time are mirrored in contrasts between different companies in
the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary
Companies, Jim Collins and Jerry Porras compared outstanding companies with
adequate but less remarkable companies with similar operations….

Collins and Porras….found the same result in each case: the company that put more emphasis on profit in its declaration of objectives was the less profitable in its financial statements.

Yves again. Simple-minded profit seeking is not what it is cracked up to be. And worse, squeezing worker wages to not simply preserve, but increase profits, is destructive on an economy-wide level (note the rising gap between wages and prices disproves the canard that the wage pressure is necessary to preserve competitiveness).

US business used to operate with the idea that the returns resulting from productivity gains would be shared by workers and the company; that notion now seems as dead as the dodo. But not allowing workers to participate in improvements in corporate returns blunts overall economic growth. Companies are fattening their current bottom lines at the expense of future top line growth. But in our current climate, this strategy looks just dandy….until government stimulus starts to be withdrawn.

Print Friendly, PDF & Email


    1. Nostradoofus

      Shareholder value is actually a decent metric if management takes a long-term view. In practice, they don’t.

      Kay basically says as much with all his examples. Job security, training, human investment, far-reaching projects, and brand equity all build share value. But the benefits are distant and uncertain, while the costs are immediate and certain.

      Hand these incentives to a manager who only sees 90 days into the future, and no long-term investments will ever be made.

      Why do we end up with shortsighted management? Because shareholders demand it. They want smooth short-term performance, even when it decreases long-term gain.

      The best managers deliver what shareholders need, not what they want: long-term growth through long-term initiatives, at the expense of short-term smoothness. That’s a difficult discipline, but you see it again and again at the big success stories, from Berkshire to Apple.

  1. Skippy

    To my back door ye receive your scraps.

    Enjoy your simple beastly pleasures for that is the most ye can hope for as I am your master.

    Skippy….my lawn needs mowing…like your job um mm.

  2. attempter

    The Angry Bear example sure is sociopathic blindness in action. And nobody can legitimately say that “that’s just how you think and write under the circumstances.”

    No, the very fact that a critical mass chooses or surrenders to such circumstances is the only thing which enables those circumstances to prevail. In a civil war you’re on one side or the other. This front line is right there every time such a “discussion” takes place.

    On the other hand, with the ICI example we see how not only would this kind of institutionalized sociopathy be morally and spiritually intolerable in a human society, but it’s also a practical failure according to its own premise.

    So it’s a clean sweep: the psychopathic “shareholder” mindset is not only morally disgusting, but rationally and practically wrong, from any point of view.

    1. run75441


      One of the great capabilities spencer has, which I do not, is the access to information to examine what is going on in the world today. In the US, and lately in China, where else is one going to squeeze? Basically, Labor is one of the few variables left in comparison to Overhead (which is often legislated or turns up as ocean transportation, or capacity, etc.) and Materials (which does not vary from country to country by much). Most recently, there has been articles on this blog on a similar topic: http://www.nakedcapitalism.com/2010/03/chinas-exporters-hanging-by-a-thread.html “China’s Exporters Hanging by A Thread” Read that article again. If China’s predicament is true, I would suggest they have far more capacity to manufacture than demand. They will have a choice of either laying off people, cutting wages even more, or closing the facilities. The same has and still does hold true for the US.

      Spencer also has some another chart here: http://2.bp.blogspot.com/_Zh1bveXc8rA/SuddUhLWUaI/AAAAAAAAA7M/iU2gefk317M/s1600-h/Clipboard01.jpg “Nonfarm Business: Labor’s Share” as taken from here: http://www.angrybearblog.com/2009/10/labors-share.html “Labor’s Share”. As the messenger, Spencer is “extolling” on exactly what is happening between Labor vs Capital.

      How old is the issue? Another chart on profits as taken from the same Labor’s Share post and at the end will give you an idea. September 2008, BIS had this to say on Corporate Profits – Financial Services:

      “From 1990 to 2006, the GDP share of the financial sector in the broad sense increased in the United States from 23% to 31%, or by 8 percentage points. During the same period, the increase in the GDP share was in excess of 10 percentage points in the United Kingdom but significantly less – around 6 percentage points – in both France and Germany. Graph 3 shows the development of the share of the financial sector in GDP for selected major advanced economies since the middle of the 1980s. The figures on profits are even more striking. For example, the financial services industry’s share of corporate profits in the United States was around 10% in the early 1980s but peaked at 40% last year.” http://www.bis.org/speeches/sp081119.htm

      Coporate profits are not going into Labor intensive industry and are being placed in other industry shy of Labor. Spencer is reporting out on the issue and nothing more.

      1. DownSouth


        You ask: “How old is the issue?”

        In the Athens of 594 B.C., according to Plutarch, “the disparity of fortune between the rich and the poor had reached its height, so that the city seemed to be in a dangerous condition, and no other means for freeing it from disturbances…seemed possible but despotic power.” The poor, finding their status worsened with each year–—the government in the hands of their masters, and the corrupt courts deciding every issue against them—-began to talk of violent revolt. The rich, angry at the challenge to their property, prepared to defend themselves by force. Good sense prevailed; moderate elements secured the election of Solon, a businessman of aristocratic lineage, to the supreme archonship. He devalued the currency, thereby easing the burden of all debtors (though he himself was a creditor); he reduced all personal debts, and ended imprisonment for debt; he canceled arrears for taxes and mortgage interest; he established a graduated income tax that made the rich pay at a rate twelve times that required of the poor; he reorganized the courts on a more popular basis; and he arranged that the sons of those who had died in war for Athens should be brought up and educated at the government’s expense. The rich protested that his measures were outright confiscation; the radicals complained that he had not redivided the land; but within a generation almost all agreed that his reforms had saved Athens from revolution.

        The Roman Senate, so famous for its wisdom, adopted an uncompromising course when the concentration of wealth approached an explosive point in Italy; the result was a hundred years of class and civil war. Tiberius Gracchus, an aristocrat elected as tribune of the people, proposed to redistribute land by limiting ownership to 333 acres per person, and allotting surplus land to the restive proletariat of the capital. The Senate rejected his proposals as confiscatory. He appealed to the people, telling them, “You fight and die to give wealth and luxury to others; you are called the masters of the world, but there is not a foot of ground that you can call your own.” Contrary to Roman law, he campaigned for re-election as tribune; in an election-day riot he was slain (133 B.C.). His brother Caius, taking up his cause, failed to prevent a renewal of violence, and ordered his servant to kill him; the slave obeyed, and then killed himself (121 B.C.); three thousand of Caius’ followers were put to death by Senatorial decree. Marius became the leader of the plebs, but withdrew when the movement verged on revolution. Catiline, proposing to abolish all debts, organized a revolutionary army of “wretched paupers”; he was inundated by Cicero’s angry eloquence, and died in battle against the state (62 B.C.). Julius Caesar attempted a compromise, but was cut down by the patricians (44 B.C.) after five years of civil war. Mark Anthony confused his support of Caesar’s policies with personal ambitions and romance; Octavius defeated him at Actium, and established the “Principate” that for 210 years (30 B.C. – A.D. 180) maintained the Pax Romana between the classes as well as among the states within the Imperial frontiers.

        After the breakdown of political order in the Western Roman Empire (A.D. 476), centuries of destitution were followed by the slow renewal and reconcentration of wealth, partly in the hierarchy of the Catholic Church. In one aspect the Reformation was a redistribution of this wealth by the reduction of German and English payments to the Roman Church, and by the secular appropriation of ecclesiastical property and revenues. The French Revolution attempted a violent redistribution of wealth by Jacqueries in the countryside and massacres in the cities, but the chief result was a transfer of property and privilege from the aristocracy to the bourgeoisie. The government of the United States, in 1933-52 and 1960-65, followed Solon’s peaceful methods, and accomplished a moderate and pacifying redistribution; perhaps someone had studied history. The upper classes in America cursed, complied, and resumed the concentration of wealth.

        We conclude that the concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation.
        –Will & Ariel Durant, The Lessons of History

        1. alex

          No, no, what you don’t understand is that today we have a totally new paradigm and the rules of the game have changed!

          BTW, was Solon a Democrat or a Republican?

        2. run75441


          Thank you for taking the time to answer me. You are always a good read. I enjoyed your commentary.

    2. David

      How much do you want to bet that in the 12 years that the directors were ‘maximizing shareholder value’, they were able to take all the money they would ever need? That way they wouldn’t have to worry about what they did to the company after 12 years

  3. gordon

    Does anybody have a link to the Levy & Temin article? I can’t download it from the nber.

    People might be interested in John Schmitt’s article “Inequality as Policy” (Oct. 2009). An extract:

    “Taken together, these policies – a low and falling minimum wage; the de- or re-regulation of major industries; the corporate-directed liberalization of international capital, product, and labor markets; the privatization of many government services; the decline in unionization; and other closely related policies – are the proximate cause of the rise in inequality. Of course, the underlying cause is a shift at the end of the 1970s in the balance of economic and political power following almost five decades of ascendancy of labor and other social movements.

    “I am not simply arguing that the explosion of inequality was a side-effect of these policies. I am arguing, rather, that the explosion of inequality – what is, effectively, the upward redistribution of the large majority of the benefits of economic growth since the late 1970s – was the purpose of these policies. The purported efficiency gains, which were realized in some cases but not in others, were
    merely a political distraction”.


  4. Kevin de Bruxelles

    John Kay’s notion of Obliquity is closely related to a principle in military strategy developed by Basil Liddell-Hart (BLH) called the indirect approach. Liddell-Hart was kind of the Ambrose Evans-Pritchard of his time; not only did he have a hyphenated surname but BLH was also a popular polemicist who wrote a column (on military affairs) for the Daily Telegraph. His experience as an officer in the British Army during WW1 disgusted him so much that after the war ended he began to study military history in search of an alternative strategic approach to that employed in the trenches of Flanders. Through his studies he was able to develop a theory of the contrast between the ineffective direct approach (frontal attacks, also called a war of attrition which depends on pure power to achieve its aims) vs. his preferred way, the indirect approach (manoeuvre warfare which relies on surprise and throwing your opponent off balance).

    His famous quote is:

    In strategy the longest way round is often the shortest way there; a direct approach to the object exhausts the attacker and hardens the resistance by compression, whereas an indirect approach loosens the defender’s hold by upsetting his balance.

    There is a huge debate about how much BLH’s theories (combined with J.F.C. Fuller’s theories of armoured warfare) influenced the Germany development of Blitzkrieg, as well as Charles De Gaulle’s similar ideas in France. BLH’s theories were later incorporated into William Lind’s ideas of four generations of warfare. Lind’s second generation refers to the direct approach (attrition) while his third corresponds to indirect (manoeuvre).

    Obviously economic theories and military strategy have different goals but I think there are similarities between on the one hand the direct military approach and the exploitive, resource extraction mode of economic thought that emphasizes maximizing profits and free trade (think the southern US states before the Civil War); an on the other hand with the indirect approach and the cooperative strain of capitalism that builds a societal fabric such as Fordism which holds that workers should be able to buy the products produced (think of the northern manufacturing communities pre-Civil War). The exploitive form is a zero sum race to the bottom which searches markets overseas while seeing labour as simply a cost of production which needs to be minimized. The cooperative capitalist stain attempts to build a community market and then seeks to protect it. It is non-zero sum in the sense that as prosperity rises, everyone in the community benefits.

    For the past twenty to thirty years America has unfortunately been captured by the exploitive capitalist paradigm which really just represents a race to the bottom. I had the good fortune to grow up in a California that had benefited from the wisdom of the more cooperative strain of capitalism as evidenced by the then outstanding UC university system as well as the less heralded community college network. These two institutions did much to accommodate social mobility and led to the rapid growth of Silicon Valley, etc.

    The only good news is that as the current crisis intensifies there should at some point be a paradigm shift and hopefully it will be towards a more localized and cooperative economic model.

  5. BullsandBears

    Companies fail in the long run because they fail to recognize the value of work at all levels of the company, and how it impacts their clients, and business. In the last thirty years, the corporate philosophy is that only the upper management returns true value, and the lower levels are stricty a cost to the company’s bottom line. My employer, unfortunately, is a classic case. The new management team (all from GE) came in and declared that they are “capitalists” and began cutting salaries, wages, and employment ruthlessly while lavishing multimillion dollar bonuses on themselves. In the short term, they are making the balance sheet “acceptable” to their masters of the universe. But at the foundation level, severe cracks have appeared that will never show up on the balance sheet until too late. Screwing the workers means screwing the clients, and the clients are being sold shoddy work. Like a poorly built house in Haiti, the collapse will come.

    1. NotTimothyGeithner

      GE has been that way since at least Welch (possibly before). He knew how to raise money, buy companies (I’ll admit he did do good dillegence on what he was buying), cut duplication, and move on. He didn’t make or sell products. If he didn’t have access to the discount window, Welch would just be some tired old man complaining about alimony.

      Remember the economic systems as explained by two cows. The GE system was to sell one cow and make the other cow produce the milk of 8 cows and then act surprised when it died.

    2. john bougearel

      UTX did the same in my neck of the woods (NW IN), four rounds of layoffs in as many months cut the workforce more than 40% in 2009. The workers that survived the layoffs had their pay cut via 20 days of furlough that year. In 2010, their number of furlough days has been cut, but the damage has been done.

      Morale has plunged, mutual trust amongst employees has been supplanted with mistrust and suspicion. And worse, former employees are skeptical that the company can survive for the long haul.

      This was one of the best companies and one of the best and larger employers in the county I live in. It used to be an independent company that saw its best days before it was sold out to UTX.

      Being that I live is a small community, the negative economic impact is hard to miss if you are paying attention.

      By way of contrast, it is said that while the US unemployment rate has more than doubled during this economic crisis; Germany, who arguably have suffered as much during this economic crisis, has only experienced a 0.5% increase in their unemployment rate. Yes, they are working a less hours to achieve this end, but the value they place on retaining their key employees is evident and not done with taxpayer subsidized bogus retention bonuses!

      We would do well here in the US to examine our so-called American values, they do appear to be sorely wanting. This form of exploitative capitalism that Kevin references is reprehensible behavior. And we should just cut the crap!

      1. alex

        The German experience puts the lie to the idea that high levels of unemployment are a necessary and unavoidable part of an economic downturn.

        Amazingly this has been achieved by a fiscally conservative and (by European standards) right-wing government. It really makes me wonder if government subsidized work hour reduction isn’t even better than Keynesian fiscal stimulus. Of course other factors that make Germany different have to be taken into account, but their experience has been damn impressive.

  6. MarcoPolo

    I don’t imagine you missed this but I wish you had been more direct. “Creating shareholder value” is code for DIS_investment, the forward movement of enterprise value to NPV done at a discount, the condition in which all intangeable assets are liquidated, i. e. that which you call in your book “maximum extraction of value”. 

    It is a function of institutional hot-money rent-seeking ownership of enterprise and their own requirement to make their quarter at all costs in order to remain attractive to hot-money capital themselves.  And is also responsible for expensive (and dangerous) takeover counter-measures.   

    1. Yves Smith Post author


      The article I linked to in the para on declining labor share of GDP, published under my day-job name at the Conference Board’s magazine, makes that argument long form.

      1. MarcoPolo

        Thank you. Guess I’m not keeping up. 
        Another causitive factor is the horizontal corporate structure that has been developed in response to mercantilist foreign competition. We don’t just outsource labor but also capital spending. When production is just another business function that can be outsourced among any of dozens of providers it isn’t necessary to “own” a factory.  Think Dell & Nike. But when production is comoditized margins on production can’t support other business functions. Each business function must be self supporting.  Easy enough with something like accounting or customer service which can be outsourced to a specialist turning that cost center into a profit center. But what about R&D?  So & so up thread has made the astonishing discovery that his customer is not willing to pay for some of his previous services!  I guarantee. R&D is a sunk cost. Your customer isn’t going to pay for that until you have something he wants to buy.  Comoditized production = no more Bell Labs.  That kind of thing is going to have to be done in sombody’s garage.  Small business.  And somebody is going to have to fund it. Somebody is going to have to be willing to analyze the business potential of those projects.  And it isn’t going to be banks who have comoditized the business of FICO scores.  Or those who have comoditized the debt instruments themselves so that investments can safely be made on the basis of a (conflicted) 3rd party rating.  And not venture capital who are just fine with taking all the equity from an already running business and gearing up so it can be sold off to a commodity producer.  Nobody is ready to create a business.  Changing management incentives in public companies doesn’t do this.  And on the other side are those of us facing less productive years and wanting to put the little we’ve been able to save to work at something other that those tired Wall Street sell side Ponzis.
        I’ve been on this for more than a decade and I know it’s going nowhere.  I think I should lighten up.

  7. Eric

    The business that I am employed in is clearly sharing the rewards of increased productivity with employees, but the targets the rewards directly at those employees perceived responsible for increasing productivity. People are working very hard right now to make sure that the manpower reductions of the last 30 months are not reversed as business recovers (which is still not clear is really happening). In the crucible of this crisis our business found out a lot about what our customers are willing to pay for and what they aren’t and have discontinued those activities that customers didn’t value enough to pay for. This process is always going on, but gets tremendously accelerated in siuations where availability of credit gets tighter. So I would say that our business still values its employees, but we just don’t have near as many of them as in 2007, and probably won’t for many years to oome – if ever.

  8. Michael Fiorillo

    Sharing the benefits of productivity gains with labor and society at large – as opposed to the “increased productivity equals fewer people doing more work for less pay” regime we currently subsist under – can only occur when capital is forced by vigorous popular and/or labor movements to do so.

    Left to its own “animal spirits,” and not forced to make concessions to other classes, capital will prey on labor, and eventually its own. What else to make of Goldman selling toxic waste to its rube fellow capitalists, which it promptly shorted?

    Greedy people destroy others, and eventually themselves.

    1. alex

      Well said (especially the first paragraph). You neatly summed up what I was trying to say in my verbose essay below.

    2. gordon

      “Left to its own “animal spirits,” and not forced to make concessions to other classes, capital will prey on labor…”

      So in a democratic society Govt. should take more from capital and give more to labour?

  9. AWM

    “came in and declared that they are “capitalists” and began cutting salaries, wages, and employment ruthlessly while lavishing multimillion dollar bonuses on themselves.”

    Corporate Communism is what I call it.
    I worked for a company that epitomizes this.
    Made them 2.5 million in profit and got a $9200 bonus, the next year (with the new management) made 2.95 million in profit and got a $600 bonus. This is after they slashed pay, help, hiring, benefits, except for those multi-million dollar “performance” bonuses for themselves.
    What really got me is that they were critical of my not retaining employees that left their $8/hour positions to take $15/hour positions with another company with much better benefits as well.
    Needless to say, I took my talents elsewhere.

    1. Dan Barbour

      Mr. Duncan,

      With all due respect, I believe you may have misunderstood John Kay and his essay on obliquity by selecting the least applicable definition for the word itself.

      While one definition (Merriam-Webster’s) does describe obliquity as you presented, other definitions are more apt in regards to the way Mr. Kay is using the word:

      From http://www.thefreedictionary.com/obliquity
      “a. A deviation from a vertical or horizontal line, plane, position, or direction.
      b. The angle or extent of such a deviation.”

      Likewise from http://www.merriam-webster.com/medical/obliquity
      “the quality or state of being oblique : deviation from parallelism or perpendicularity ; also : the amount of such deviation”

      A line that approaches a plane at an angle less than 90 degrees (i.e. not vertically) is approaching it obliquely (indirectly) and John Kay states that it is only by indirectly seeking happiness (i.e. by applying his principle of obliquity) that happiness can be achieved as noted from the quote below taken from his essay:

      “..the happiest people are not those who make happiness their main aim. The name of this idea? Obliquity” Rather, he later states that those who DO make happiness their main aim are hedonists.

      By extension – companies who pursue profit as their main aim (i.e. their DIRECT aim – the antithesis of applying an oblique approach) are less likely to maximize their profits.

    2. Alexandra Hamilton

      No sooner is the exploitation of the labourer by the manufacturer, so far, at an end, that he receives his wages in cash, than he is set upon by the other portions of the bourgeoisie, the landlord, the shopkeeper, the pawnbroker, etc.
      Karl Marx – Manifesto of the Communist Party

  10. Dan Duncan

    Ubiquitous Obliquity.

    Obliquity is defined as “a deviation from moral rectitude or sound thinking.”

    Kay gives context to the definition by giving an example of an “Obliquitous Thinker”…as one who seeks happiness as an end in and of itself. Typically, this person fails.

    Another way of looking at all this…

    Actions performed for the sake of the action itself become things, and these things are often as burdensome as boulders.

    When working becomes “work”, it is often unsatisfying.
    When loving becomes “love”, it is often absent.
    When losing becomes “a loss”, it is often more painful.
    When obsessing becomes “an obsession”, it is often a disorder.
    When possessing becomes “a possession”, it is often lost.

    Emotional baggage is the stuff of such boulders.

    Keep your verbs as verbs…and Misery, too, will be fleeting.

    1. gruntled

      This is very nice, Dan Duncan.

      I think this is all related obliquely to what John Lennon must have meant when he said something like “Life is whatever happens while you’re busy making other plans.”

  11. alex

    Does high GDP/capita lead to high wages, or do high wages lead to high GDP/capita? Most economists, accountants and business people I suspect think solely in terms of the former, but the latter plays an important role. The short term thinking of the former is handily summarized as people who know the price of everything and the value of nothing.

    Obviously a country with $10k GDP/capita can’t pay an average of $20k/capita. But what about a country where the GDP/capita is $10k, the typical person (say the bottom 95 percentile) earns $7k/yr, but the political/economic possibility of driving the typical wage to $6k/yr exists? Obviously the top 5 percentile will see that (correctly) as an easy way to increase their share of income.

    Contrast that with a country where the political/economic situation makes it difficult to drive down wages. Investors will still invest though, and want to increase their returns. Denied the easy road of reducing wages, successful capital will instead think in terms of increasing productivity ($ of worker output per hour). Given the political/economic climate of that country, a chunk of that increased output will go to the workers, but not all of it. Ergo everyone benefits.

    Obviously the above is a highly simplified scenario, but it makes the point. The post-WW2 US, filled with memories of the Great Depression and with a political system where rising real wages were actually considered a (gasp) good thing, was the latter scenario. With strong labor protections, unionization and a political climate where fostering the cheap labor approach was political suicide, investment had to focus on improving productivity. Admittedly “capitalists” grumbled about having to share some of the wealth with labor, but they grumbled all the way to the bank. “Capitalists” who extolled the virtues of sharing the wealth and paying for quality labor were not virtuous paragons of some then-nobler-race, but people who were successful under the constraints of a political/economic system that made the race-to-the-bottom cheap labor approach unprofitable. The practices of successful people in such an environment then became part of the accepted wisdom of successful business.

    Contrast that with the political climate of the last 30 years where the discourse is as though everyone is a “capitalist” and rising wages only go to an unwashed and undeserving “them”. Labor is viewed strictly as a cost and never as an asset, save a few top executives to whose brilliance all gains are attributed (and conveniently forget that they’re just well coiffed labor). Increasingly too those overpaid American workers can be replaced with $2/day labor in some developing country while still (thanks to the extra-regulatory miracle of MNC’s) keeping the profits for a handful of Americans.

    Focusing on individual “greed” is silly. Greed is ill-defined, unhelpfully moralistic and arguably (depending on your exact definition) an essential part of a market based system. Why pay $2 for something you can get for a $1? I don’t (or at least try not to). Instead you need a political system that helps ensure that the $1 product is cheaper because of greater efficiency and not because it’s made by abusively cheap labor.

    1. Michael Fiorillo


      I agree with you that writing simply about personal greed is a dead end. What I should have originally written was “A system that encourages and enables unrestricted greed destroys others and itself.” It will also destroy the natural systems upon which it depends for inputs.

      When Peter Maurin, who co-founded the Catholic Worker movement with Dorothy Day, was asked what his goal was, his answer was, “A society where it’s easier to be good.”

      We can argue about the nature of The Good, but Maurin’s quote is a pretty good place for us to begin a discussion of economics and political economy.

  12. i on the ball patriot

    Yves said; “US business used to operate with the idea that the returns resulting from productivity gains would be shared by workers and the company; that notion now seems as dead as the dodo. But not allowing workers to participate in improvements in corporate returns blunts overall economic growth. Companies are fattening their current bottom lines at the expense of future top line growth. But in our current climate, this strategy looks just dandy….until government stimulus starts to be withdrawn.”

    @#$%^&* effing *&^%$, let’s get off this profit assumption — its not about profit! Its about CONTROL! Its about crushing the democratic ideal! Its about POWER! The obliqueness here is the orwellian cover-up bullshit that maintains the profit meme as the goal. It is not!

    At some point everyone is going to have to wake up to the fact that the old vanilla greed profit seeking is no longer the goal. The new elite pernicious greed goal is now about control. It is about gaining total global power in all institutions and crushing the democratic ideal by thrusting everyone on the planet into a divisive perpetual conflict that will end in a simple two tier ruler and ruled world.

    These pricks are smart, mean, and persistent and they own the system. It is not about profit, or ‘oblique’ financial derivatives, or share holder value, it is about pure raw mean ass power. It is about ‘slave holder value’.

    There is an interesting and well written article in the Guardian today about another democracy crushing global institution, the nazi pope Ratzinger’s catholic church, that reveals some great parallels. It is worth a read and some reflection on pernicious control …


    “The cover-up of child sexual abuse by the Catholic church is not about sex and it is not about Catholicism. It is not, as Pope Benedict rightly argued in yesterday’s distressingly bland pastoral letter, about priestly celibacy. It is about power.

    The urge to prey on children is not confined to the supposedly celibate clergy and exists in all walks of life. We know that it can become systemic in state and voluntary, as well as in religious, institutions. We know that all kinds of organisations – from banks to political movements – can generate a culture of perverted loyalty in which otherwise decent people will collude in crimes “for the greater good”.

    In none of these respects is the Catholic church unique. What makes it different – and what gives this crisis its depth – is the church’s power. It had the authority, indeed the majesty, to compel victims and their families to collude in their own abuse and to keep hideous crimes secret for decades. It is that system of authority that is at the heart of the corruption. And that is why Benedict’s pastoral letter, for all its expressions of “shame and remorse”, is unable to deal with the central issue. The only adequate response to the crisis is a fundamental questioning of the closed, hierarchical power system of which the pope himself is the apex and the embodiment. It was never remotely likely that Benedict would be able to understand those questions, let alone answer them.”

    More here …


    Deception is the strongest political force on the planet.

    1. velobabe

      is unable to deal with the “central issues”. that seems to be the entire world’s problem today.
      guardian.co.uk has some perverse articles that are most viewed.
      French guillotine exhibition opens 33 years after the last head fell
      French woman sentenced to 15 years for killing six babies
      oh well i guess i am the one that is perverse†

    2. DownSouth

      Perhaps Orwell put it best. He called the army of economists, priests and military “experts” that the ruling class has at its disposal “paid liars and bumsuckers.”

      As a gay person, my biggest problem with Miss Ratzinger is that she is so obviously gay. While there is nothing inherently wrong with that, having someone so obviously gay that also lacks morality, and in such a high profile position, nevertheless reflects badly on the gay population as a whole.

      Ratzinger is to gay people what Obama is to black people.

      1. anon


        I appreciate your comments at Naked Capitalism. I’ve learned a lot from your quotes as well as your insights. I don’t understand this, though.

        “my biggest problem with Miss Ratzinger is that she is so obviously gay.”

        Why do you call Pope Benedict “Miss Ratzinger”? (I understand Ratzinger, but not “Miss”.)

        FWIW, I don’t think Pope Benedict reflects badly on gay people. Power corrupts. Gays are not exempt; they’re human just like the rest of us.

        1. anon

          Sorry, Down South, and anyone else I may have offended by my poorly worded response. (Calling gays “they”.) I had interpreted Down South’s comment as thinking of Benedict as representing all gays and therefore implicitly different than the rest of humanity. I don’t think he is (at least by virtue of being gay or straight, though he is because of his power) but my wording might suggest otherwise. I was trying to say the opposite but did so poorly. I apologize.

        2. DownSouth


          I was being campy.

          In the gay subculture, my comment needs no explanation. But to someone outside the subculture, it may be confusing.

          Perhaps this photo, with the caption “Miss ‘Betty Ratzinger’, the queen of homophobia,” captures the way much of the gay community thinks of Ratzinger:

          Or this one, with the caption “Ratzinger Wins Miss Vatican Beauty Pageant,” conveys a similar sentiment:

        3. DownSouth

          Unfortunately not everyone is as open minded or as fair minded as yourself. Large segments of the US population, including some in the Catholic Church, try to paint gay people with the brush of pedophilia, or Nazism. They always march out Ernst Röhm, and entire religious ministries, like that of James Dobson, were built by portraying gays as pedophiles, despite numerous empirical studies showing that the incidence of pedophilia within the gay community is no greater than it is in the heterosexual community:


          Most in the gay community deride Ratzinger for his hypocrisy. He’s like the right-wing senator who rants against gays and lesbians, and then gets caught sucking cock in the men’s bathroom. Another excellent example is the Rev. Ted Haggard.

  13. Jim

    The problem is the global oversupply of labor, aka deflation. This is a result of the world adopting free-market policies; it is also a result of automation. And today we are all spendthrifts, making things worse.

    What is the solution? I’m trying to think of something short of socialism as I don’t trust most of the socialists I have knows for 3 decades.

    What would be the effect of a radical antitrust policy – some sort of ruthless breaking up of companies on a world scale. My sense is this would – in a good sense – “reinvent the wheel”. It would lead to deliberate inefficiencies, which would be a good thing from the standpoint of workers. There would be higher demand for labor.

    1. run75441


      The population is growing at a faster clip than job creation. I am not so sure that introducing inefficiencies to the process would resolve the issue. If we had a “Waybac Machine” and toured back to the late 19th century and early 20th century, we would discover Labor working whatever hours were demanded of them by the company. Here we are in the 21st century and we again find the same issue of excessive hours by Labor with millions of people sidelined as witnessed by a decreased BLS Participation Rate.

      Sandwichman arguing the Lump of Labor Fallacy was a big proponent of reduced hours http://econospeak.blogspot.com/2009/07/fordy-hours.html “Fordy Hours” for Labor . . . 32 hour work week in place of a 40+ hour work week. In such instances, output increases as employees are rested. Studies have shown the increases in hours beyond 40 hours demanded of employees results in less output as compared to a normal work week. The pay would remain the same for the 32 hour work week which would result in a fractional increase in the cost of the product. Why is this true? Labor is the smallest component of the cost of manufacturing and often times in totality ~10%.

      There is a little remembered SCOTUS decision that occured in the late seveties. Congress never reacted to it which suprised Brennan, the writer for the majority. He believed Congress would take action once SCOTUS ruled striking down state Usury laws as applied to National Banks,
      Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. Wiki does a nice jobe explaining it here: http://en.wikipedia.org/wiki/Marquette_Nat._Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp.

      In any case change the paradigm and limit the amount of profit which can be made by banks and Wall Street not employing labor in the creation of a product or service. Kind of marxists, isn’t it? “If you really want to raise a stink you could look at this as a great example of the Marxist immiseration of labor that Marx believed was one of the internal contradictions of capitalism that would eventually lead to its self destruction.” Spencer – “Labor’s Share” on a chart detailing the skewing of productivity gains to capital versus nonfarm labor. There is something wrong when the Chases, BofA, Citibank claim they need 16% (good customer rates) on credit cards in order to remain profitable when food processers and stores operate of 2-3% margins.

      It is not the companies that employ Labor persay creating the issues. I would hit the Financial Services Industry as they are the growing part of the economy dollar wise employing little-value-creating Labor and much of this resulting from the SCOTUS decision and other Wall Street economic cliff hangung activities.

      “For example, the financial services industry’s share of corporate profits in the United States was around 10% in the early 1980s but peaked at 40% last year.” pre-2008

      1. DownSouth


        You say:

        In any case change the paradigm and limit the amount of profit which can be made by banks and Wall Street not employing labor in the creation of a product or service. Kind of marxists, isn’t it? “If you really want to raise a stink you could look at this as a great example of the Marxist immiseration of labor that Marx believed was one of the internal contradictions of capitalism that would eventually lead to its self destruction.”

        Will & Ariel Durant wrote a compelling response:

        Marx was an unfaithful disciple of Hegel; he interpreted the Hegelian dialectic as implying that the struggle between capitalism and socialism would end in the complete victory of socialism; but if the Hegelian formula of thesis, antithesis, and synthesis is applied to the Industrial Revolution as thesis, and to capitalism versus socialism as antithesis, the third condition would be a synthesis of capitalism and socialism; and to this reconciliation the Western world visibly moves. Year by year the role of Western governments in the economy rises, the share of the private sector declines. Capitalism retains the stimulus of private property, free enterprise, and competition, and produces a rich supply of goods; high taxation, falling heavily upon the upper classes, enable the government to provide for a self-limited population unprecedented services in education, health, and recreation. The fear of capitalism has compelled socialism to widen freedom, and the fear of socialism has compelled capitalism to increase equality. East is West and West is East, and soon the twain will meet.
        –Will & Ariel Durant, The Lessons of History

        The Durants wrote that in 1968. And of course their prophecy has not come true. Instead, capitalism has gained the upper hand and is again in self-destruct mode. Maybe Marx will be proved right after all.

        1. bio

          The “synthesis” does not mean a fusion of the opposites. “Synthesis” is simply a jump to a new “quality”, which in itself will have its own contradictions. Neither socialism nor capitalism shall win, but be supplanted by something else.

          Same applied to the struggle of the US versus the Soviet Union. Neither could “win”. The latter visibly collapsed and presumably repudiated its ideology. The former collapsed internally and assumed extremes of its ideology. Both are being supplanted by the “mutilator” world.

          1. i on the ball patriot

            I think “mutilator” world is more correct.

            Deception is the strongest political force on the planet.

        2. i on the ball patriot

          DS said; “The Durants wrote that in 1968. And of course their prophecy has not come true. Instead, capitalism has gained the upper hand and is again in self-destruct mode. Maybe Marx will be proved right after all.”

          Capitalism has NOT gained the upper hand. Capitalism does not exist. Free markets, competition and private property are deflective carrots all negated by the scam, ‘rule of law’, that is owned and operated by the wealthy ruling elite gangsters. Every time you call them capitalists you serve to empower the carrot myths, deflect from the gangsterism, and give up your power.

          Marx won’t be proved right, he was sucked in by the carrot myths of capitalism and his premise was wrong; “The history of all hitherto existing society is the history of class struggles.”

          Marx did not go deep enough. The history of all hitherto existing society is the history of deception pitted against perception. The struggle exists in all of us and in all societal groups. We are thrust into this world as cannibalistic organisms that must cannibalize other organisms in order to survive. Every thing we externalize (create) is a deception created to get our needs met. Failure to accept that reality is the major impediment to more fairly regulating the cannibalization process.

          Accepting that reality will also show that very transparent regulation with all persons involved is essential to moving forward peacefully.

          Deception is the strongest political force on the planet.

          1. RagingDebate

            Boil it down even further. Human beings do anything based on the opportunity to benefit or the fear of loss. Socialist systems like Communism use the fear of loss, to whip the mules under the threat of no work means no eat. Capitalism relies on the opportunity to benefit. You work harder and smarter you eat steak instead of hamburger.

            What we have in the U.S. is already that hybrid of socialism and capitalism, it is called Fascism. The U.S. is moving toward Communism, whereas the Chinese have evolved into Fascism from Communism.

            Maybe the elite just feel it is the West’s turn to be Communists and the East’s turn to be Capitalists. But the interesting thing is that the Chinese in particular don’t seem to want to play ball toward Capitalism any further at this moment in time.

            The U.S. leadership elite pinged and now the Chinese have decided not to pong. If this was a movie, I would be laughing hysterically. Unfortunately, it is real life and the result of U.S. leadership’s hubris is going to cause serious geopolitical consequences, large scale military misadventure in the nuclear age…

            The elite investment into the East will go down the tubes and the planned Chinese economic engine for the world with it. It will be launched half-cooked with Americans answering to a different draconian Fascist regime until it breaks.

    2. Mansoor H. Khan

      How is being NOT a spendthrift going to solve the problem? Not spending will reduce demand even more and increase unemployment (i.e., decrease employement). The solution is to simply print money and do government projects until deflation goes away.


  14. Jennifer Hill

    Worker advocates have known about the squeeze for a long time. Unless employers are called to account they will try to get more out of their workers.

    We now have what I call the corporate and non-profit gulag. Workers are required to work more and longer hours for the good of the company or cause. If you question the directors you are seen as a whiner, debby downer or worse you are not commited to the cause.

    I’ve understood that more and and longer hours do not lead to better results for achieving goals for a long time. We do look rather ridiculous working like fools and often times not accomplishing much for ourselves, others or our country. In fact there are times when this looks completely backward – right now for example.

    People are working so hard and afraid to call the employer on it because there is no place to go. Jobs are scarce and workers are scared. Most of the unemployed will continue to be the young and those in their 50s.

    Employers don’t want to hire very young or folks in their fifties. Why would you when you can get your pick of late 20 to early 40s workers who will do anything you ask. School kids and 50 year olds need time off and have lives. Who needs workers that might get sick, have to go home at night or can’t give the 60 hours a week when you are only getting paid for 40 hours?

    This is another sneaky way that our corporate culture has taken advantage of the economic crisis. They have the power to do what they will to keep the profits flowing to the top and no reason to stop.

    The only thing that will make employers stop is when we stop doing their bidding. We have to tell them no, because it is the right thing to do. It is right for people to have lives outside of work, it is right for people to be paid what they are worth, it is right to get paid over time when you consistently work over time.

    Here’s to doing the right thing – no matter the cost to the profiteers.

    1. RagingDebate

      The worker mules doing the 60 hour works weeks are also human and will grow tired. They have been doing increasingly more work for less since 2000. The result will be less productivity, the shock of this depression level event is allowing corporations to wring further short term profits off of labor. That will change. As the Russians once said by the 1980’s “They pretend to pay us and we pretend to work.”

      The mentality of “live for today for tomorrow we die” is cyclical collective human behavior. The biggest U.S. voting bloc is the Boomers. They voted to eat two lunches instead of one. The result will be cosmic karma. The producers supporting that free lunch will begin pretending to work and the entitlements the Boomers voted for will vaporize. Plus the Gen X and Millenial mules will no doubt be resentful toward the class warfare. I paint a broad brush here. I don’t believe simply assigning blame to Boomers will solve the problem. The Gen X’ers and Millenials will become more politically active from the pain and will eventually reward productive labor once again. Until then, eating most of the seed corn along with the inheritance from the WWII generation will continue.

      PS: I own a small business. My employees willingly work the 60 hours if I ask them to and I reward the employees by meeting revenue or technical milestones. My employees have been getting salary and bonus increases this year for fighting the good fight of survival alongside me during 2008-2009. Those same employees also go home and willingly help me with my news social media network management is building to help educate the American public.

    2. LosingGround

      “People are working so hard and afraid to call the employer on it because there is no place to go. Jobs are scarce and workers are scared. ”

      Well, why don’t the “workers” (you are assuming a static culture) just quit and start their own company if they have a better understanding of what to do?

  15. Brick

    Ultimately the workers are the customers so it is really short sighted. I can not help but feel that automation is bringing us to the point of peak employment. This has implications for pension schemes in that the problem of employment is going to made worse by the tendency to increase retirement ages. Since most governments are going to have to deal with this and the under funding of pensions we should expect corporate taxes to rise as firms are seen to make obscene amounts of money. Short term then we should expect remarkable profit gains, but longer term once taxation is raised those profits will be squeezed. It looks like a positive feeback loop to me.

    1. alex

      “automation is bringing us to the point of peak employment”

      They said the same thing from the earliest days of the Industrial Revolution. With those new spinning and weaving machines reducing the labor required to make clothes, what are people going to do to make a living? Yet here we over 200 hundred years later, with productivity having increased many fold, and until quite recently we had low unemployment. Undoubtedly there are growing pains and dislocations due to increased automation, and these have often been handled badly, but the idea that increased automation necessarily limits employment has been disproved by centuries of experience.

    2. kievite

      Not sure that this is true. Share of consumption for families with income, say, below $91K per year (80% of US housholds) might be less then commonly assumed. The median household income in the United States is around $50K. 
      I do not have data for the USA but globally in 2005, top fifth (20%) of the world accounted for 76.6% of total private consumption. The poorest fifth just 1.5%. I do not think the USA differs that much from the rest of the world.

      Also under Bush country definitly moved from oligarchy to plutocracy. Bush openly claimed that “have more” is his base. The top 1% of earners have captured four-fifths of all new income.

  16. kievite

    "Maximizing shareholder value" is very similar to cult of GDP. GDP never measured economic efficiency of the
    country; it measures the level of economic activity. Healthcare
    is a classic example. The USA spends 20% to subsidize maladaptive behavior
    between producers and consumers in the medical food chain.

    The other problem with GDP, which the USA actually shares with the
    USSR is the quantity is substituted for quality. Generally the "cult of
    GDP"  dominates the USA economic discourse.  As a result  American GDP figures are wildly distorted
    (hedonic adjustments, etc). In a way the calculation of  GDP became
    just a complex (and by-and-large counterproductive) ritual
    not unlike some religious rituals like calculation of certain dates. 
    That’s why we can talk about "Cult of GDP" as a religious phenomena.  

    This cult has mirror image in large corporate behavior.  Both on
    the level of society and the level of large corporation if the metric is
    wrong, then the policy based on it is destructive. 

    The USSR example suggests that the most dangerous aspect of GDP is
    "tail wags the dog" effect  — it implicitly stimulated
    maladaptive, counter-productive behavior of government and its major
    economic agents. The term for the USSR was "phantom GDP" and now it
    applies to the USA to the full extent possible. For example  offshoring may have created about
    $66 billion in phantom GDP gains since 2003
    A lot of phantom GDP was also created in import-dependent industries.
    Accounting at large multinationals is as distorted as in the USSR to
    the extent that some part of profits are completely fictional (writing
    down as research many non-research activities is a one popular trick). 
    The danger amplifies when individual firms adopt questionable metrics
    like "maximizing shareholder value" as capitalism is by nature a
    dynamic economic force what seeks change and became destructive if
    corporate goals for such a change are misaligned with the larger
    society. In other words "maximizing shareholder value"
    implicitly presuppose minimizing
    societal value and responsibility.  One telling
    example is the emergence of "blockbuster" drags, like all those
    cholesterol lowering drags, recreational drugs like Viagra, etc in big

    There is also a more generic problem with one dimensional metrics of
    economic performance that USSR was first to demonstrate to the world. 
    People are very adaptable and if some numeric scale became an official
    goal they demonstrate tremendous ability to abuse this metric both by fraud and by corruption of
    controlling organizations defeating the initial goals and
    purpose of the measurement.  So "maximizing shareholder value"
    paradoxically might be the best way to destroy any traces of honest
    accounting and honest auditors :-).  This phenomena was
    independently rediscovered in the USA by the name of  "numbers

    1. /L

      Just after the implosion of the Soviet empire everything was a mess, no salary for government employees and so on. One historian was over to do research and not even in the official archives people get their salaries so he could get access to studied matters and according to him there was the statistic for public consumption but the Soviet military who was the backbone of the economy did have accounting that reflected reality and in good order, militaries usually know the importance of knowing what real resources is available and where they are. As in the times of official boosting of record harvests and o on the military had the correct accounting.

      The archive workers could also tell about western interests that had used to initial moments in total chaos to extract documents about their affairs with Soviet that they was in risk of being public.

  17. spamSoup Party

    squeezing worker wages to not simply preserve, but increase profits

    Totally out of context we are tempted to be tempered by your temporarily tempting arguments from Saint Yves. We then see the parallelism with minimum wage legislation. Can you improve the plight of subsistence wage slave through money under the table to elected officials? By contrast, can increased company profits be used to rehire the homeless? Get right with context! We live in a world of tax over-burden. Does Trichet understand this better than Ben? Does T raise rates to force Fiscal Policy Manipulators to drop Payroll Tax? Is payroll tax the really real ax? Can we visualize the method inside Jean-Claude’s madness? Does FOMOC now need to partake of the same poison? Was FOMOC sipping at six percent. Did Fed blink?

    What do you think

    1. DownSouth

      Wang An-shih, as premier (1068-85), undertook a pervasive governmental domination of the Chinese economy. “The state,” he held, “should take the entire management of commerce, industry, and agriculture into its own hands, with a view to succoring the working classes and preventing them from being ground into the dust by the rich.” He rescued the peasants from the moneylenders by loans at low interest. He encouraged new settlers by advancing them seed and other aid, to be repaid out of the later yield of their land. He organized great engineering works to control floods and check unemployment. Boards were appointed in every district to regulate wages and prices. Commerce was nationalized. Pensions were provided for the aged, the unemployed, and the poor. Education and the examination system (by which admission to governmental office was determined) were reformed; “pupils threw away their textbooks of rhetoric,” says a Chinese historian, “and began to study primers of history, geography, and political economy.”

      What undermined the experiment? First, high taxes, laid upon all to finance a swelling band of governmental employees. Second, conscription of a male in every family to man the armies made necessary by barbarian invasions. Third, corruption in the bureaucracy; China, like other nations, was faced with a choice between private plunder and public graft. Conservatives, led by Wang An-shih’s brother, argued that human corruptibility and incompetence make governmental control of industry impracticable, and that the best economy is a laissez-faire system that relies on the natural impulses of men. The rich, stung by the high taxation of their fortunes and the monopoly of commerce by the government, poured out their resources in a campaign to discredit the new system, to obstruct its enforcement, and to bring it to an end. This movement, well organized, exerted constant pressure upon the Emperor. When another period of drought and flood was capped by the appearance of a terrifying comet, the Son of Heaven dismissed Wang An-shih, revoked his decrees, and called the opposition to power.
      –Will & Ariel Durant, The Lessons of History

      1. spamSoup Party

        high taxes, laid upon all to finance a swelling band of governmental employees.


        Is Pelosi now 王 安石 reincarnate, in *instant replay* for more taxation without cogitation? Does she realize that her regressive payroll tax at certain moments is larger than income tax which is now hardly progressive thus of minimal defense against inflation? Is her comet coming to a theater near you? Has she seen her lizard? Was Kurt Vonnegut Jr. on target when he suggested that Hiroshima explosion was merely an illusion, not a chain reaction but merely Emperor returning to the Sun whence he had arrived? Will Pelosi exit pass the Geiger Counter inspection?

        U B Judge

        U B Vonnegut

  18. sam hamster

    If the wages of workers were to rise, I’m confident that the Fed would squelch this “inflation.”

  19. gordon

    We now have the greatest wealth divide since when? 1930? Second highest in the world. Why don’t you tell everyone what the average EFFECTIVE corporate tax rate is? Seems it was 7% in 2008 as I remember. Corporate taxes are down 50% now in the last year. Do the math. Why no OUTRAGE or mention of Goldman Sachs EFFECTIVE tax rate ONE PERCENT last earnings, right? Rick Santelli leaked “surprised no one mentioned…” on CNBC. Little mention around these blogs about the 5-year (FIVE instead of the usual THREE, thank you Gangster Dodd)) tax-loss carry back for corporations, like the home builders getting all their taxes paid in boom years 2004, 2005 refunded. KB Homes had– what was it $675K refund? Some had even more!. Oh,their TBTF, I forgot. I’d like to get all my taxes refunded for 2004 & 2005.
    I always said ultimately these bastard corporate tax cheats would kill the very consumer needed to buy their products. No more $300+ Billion annual home equity withdrawls for Joe Sixpack that served to disguise the wealth gap.
    It was all a fraud.

    1. gordon

      Now there are two gordons. What to do?

      (I’m the one who put up the link to Schmitt and asked for a link to Levy &Temin. I didn’t author Mar 21 @ 3:28PM)

  20. Losing Ground

    “Obliquity gives rise to the profit-seeking paradox: the most profitable companies are not the most profit-oriented. ICI and Boeing illustrate how a greater focus on shareholder returns was self -defeating in its own narrow terms. Comparisons of the same companies over time are mirrored in contrasts between different companies in the same industries.”

    I don’t see any paradox. Those who claim to focus on “shareholder-value” are really talking about maintaining their share price on a quarterly basis; this necessitates not making important expenditures that create value over a longer timeframe.

    Those who don’t focus on short-term share price are likely thinking about growing profitibility for the longer run, and are willing to sacrifice short-term share value for longterm shareholder value. Of course, many companies perhaps just see no point in playing these shell games and therefore just remain private so that they can focus on one or two shareholders and ignore the millions that come along once they open up to Wall Street.

    There’s no real mystery to this.

  21. Doug Terpstra

    Thank you, Yves. —“Simple-minded profit seeking is not what it is cracked up to be. And worse, squeezing worker wages to not simply preserve, but increase profits, is destructive on an economy-wide level.” A fine example of nenlightened self-interest in action.

    Pursuit of passion and value, nurturing and rewarding the creative capacity and contribution of everyone involved is a path to real, lasting wealth creation. Squeezing workers is like gutting the goose to seize all the golden eggs it can lay at once—ending up with only one dead goose, the global economy.

  22. Jim in SC

    Aldous Huxley says somewhere (I paraphrase): ‘isn’t it curious that the things that come to us in life are the things we see out of the corner of our eye, rather than the things that we see head on and desire most fiercely’.

    The principle of obliquity has been noticed by many well developed minds.

  23. ep3

    Yves, I think you are only partially stating what has happened to companies and wages. But the objective of the corporate entity now is to suck all value out of the company (see hart, schaffner, & marx; simmons bed company, the big 3) and go for the short term gains. Then you declare the company bankrupt while management rides golden parachutes out the back door. I think it was called corporate raiding in the 80s. Our tax structures encouraged investing long term in the company and the owners’ fate was tied to what the company did years later. Again, most people running these companies will not suffer the same fate as their lowest paid worker when the company closes its doors.

  24. BlackBox

    It is interesting to combine this with Say’s Law, that supply creates its own demand. If the fraction of revenue going to profits becomes large, the workers may not have enough money to buy all that they collectively produce, while the owners have surplus money. In that situation, it is not surprising that debt increases as the rich lend to the poorer workers. For the workers, it is a bit like incurring debt to shop at the company store, but on a national scale.

    1. gordon

      Very neatly put, BlackBox. I have taken the liberty of quoting your comment on another blog without attribution, simply saying it is “an excellent comment from another blog”. Details available on request.

Comments are closed.