5 ms·

Takes a bit of reading before the primary issue gets mentioned: > "Some of the improvement in profit margins may have come from sourcing cheaper inputs from ab

Takes a bit of reading before the primary issue gets mentioned: > "Some of the improvement in profit margins may have come from sourcing cheaper inputs from abroad, enabled by increased globalization. Moreover, for output produced within the U.S., growth in labor productivity—i.e., real output per hour worked—exceeded real wage growth since the mid-2000s. This means that, for a given cost of labor, firms were able to produce more output, which would also likely have contributed to the improvement in profit margins." I's rewrite the introductory sentence for this article as follows: "Over the past two [four] decades, the corporate profits of stock market listed firms have been substantially boosted by ~~declining interest rate expenses~~ [outsourcing manufacturing abroad to sweatshop zones] and ~~lower corporate tax rates~~ [importation of cheap and often undocumented labor from poor countries]." That's the essence of what its dectractors (including myself) call the neoliberal economic model.

theironhammer 4y ago
Excellent analysis! I would add investment in low risk high returns ventures like software as opposed to high risk lower returns ventures like brick and mortar factories.
- astrange 4y ago
  Calling things neoliberal isn’t an incisive economic analysis, it’s a way to get upvotes from people in SF who claim to be Marxists and whose parents are rich landlords. Many of the “neoliberal” things that supposedly happened did not actually happen. https://noahpinion.substack.com/p/was-there-really-a-neoliberal-turn https://noahpinion.substack.com/p/was-there-really-a-neolibe...
  - VictorPath 4y ago
    Speaking of Karl Marx, he made the exact same prediction as this paper does, only he did it a century and a half ago ( https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... )
dvt 4y ago
> That's the essence of what its dectractors (including myself) call the neoliberal economic model. The impact of "cheap and often undocumented labor from poor countries" is minuscule, especially considering the sectors that have the highest profit margins aren't low-skill manufacturers, but rather finance, tech, real estate, private equity, and so on. There are two main issues at play here: corporate debt levels, and interest rates. The article does a pretty good job of covering both, and trying to spin the past few decades as some sort of "corporate colonialism" is missing the forest for the trees.
- leereeves 4y ago
  The profit margins in finance and real estate were only possible because "corporate colonialism" prevented wages and consumer prices from rising along with asset prices. If real consumer prices hadn't been driven down by reduced manufacturing costs, then the lower interest rates that drove up asset prices would have led to consumer inflation and wouldn't have been politically viable. And if American labor had been able to demand a greater share of the wealth created over the past forty years, then corporate profits would have been far lower.
  - dvt 4y ago
    > easy money policies that were only possible because.. I would push back a bit. First, I think these easy money policies are basically "possible" whenever the Fed mandates them (and the markets simply react accordingly). My point here is that they actually don't have to be rooted in any kind of fundamentals. Even now, the Fed is basically willing to blow up foreign markets (which might seem irrational) because it doesn't want Americans to go through inflation. Second, while I do agree that cheap labor has enabled some of this, it's mostly due to China's insistence on treating its citizens like chattel; and, yes, to some extent the West being complicit, though calling it colonialism deflects blame from the true architects of this evil: the CCP. > and if American labor had been able to demand a greater share of the wealth The way I see things, wealth demanded is a function of leverage. American labor has no leverage when compared to Chinese labor (maybe apart from quality), and therefore always loses out.
andrepd 4y ago
I wouldn't strike through those two factors to be honest. Monetary policy since 2008 has benefited capital and harmed labour. And the ideologically driven cut on corporate tax (and on the highest bracket income tax marginal rates as well) since the 1980s has also had a similar effect (see how CEO pay has skyrocketed)
- skippyboxedhero 4y ago
  I think the author 100% knew what he was doing by not mentioning QE directly at any point. It isn't just since 2008, the cut in 03-04 to 1% was basically why synthetic CDOs were invented...it is amazing that this happened twenty years ago, and there is still a "debate" about the long-term financial consequences of very low interest rates/QE. Also, the issue with corporate taxes has been more to do with European tax havens. Places like Netherlands, Ireland, Luxembourg got very aggressive in offering corporations bilateral deals (i.e. bespoke deals on corporation tax outside the legal framework that applied to domestic companies). The US tax rate in the early 2010s was still 35%, it was only when revenue began moving offshore that the US felt the need to cut (not just the US, the same thing happened in the UK). The global minimum corporation tax deal is supposed to tackle this but, to be honest, the US should have cracked down on individual countries far sooner.
  - sooheon 4y ago
    > Figure 2 makes clear that a key driver was the decline in corporate interest rates—which itself largely reflects the steady, decades-long march down in Treasury yields. This is a direct reference to QE.
- subradios 4y ago
  Corporate tax does not help or hurt labor. Corporations do not pay taxes - their customers or their employees do. The only way that a corporate tax is better for the worker than not a corporate tax is if that money will be better spent by the government. We cannot show this to be true, because very often government funds are utilized to fund programs and projects that are primarily ideologically motivated instead of mere improvements to facilities and entitlements we all use. Additionally sectors that have largesse of government spend (Medicare, military procurement, California HSR) start to morph to maximally abuse procurement bureaucracy and obtain monopoly power rather than provide service. These problems are solvable to be clear, but it doesn't strike me as obvious that the money Amazon makes is spent better by Congress than by Amazon in every possible case.
daniel-cussen 4y ago
sooheon 4y ago
Why must everything always be only one thing? Why not both? The decline in taxes and interest rates mechanically account for 1.8% points of the 5.4% net income growth in the SP500 since 2004. This is not in dispute, unless you don't trust the numbers. Outsourcing and cost cutting account for some of the difference between sales growth (2%) and EBIT growth (3.6%), or 1.6% growth. Basically if you only sell a little bit more, but your costs go down, you can take home more earnings. But it's not a given that 100% of this 1.6% gap comes from sweatshops, there have been some legitimate reductions to cost of labor domestically, unless you think literally nothing has changed about productivity in the last 18 years. So sweatshops account for a maximum of 1.6% of returns, likely less, while taxes and cheap credit account for 1.8%. Outsourcing is not "the primary issue", mathematically.
deleted 4y ago
[deleted]
jryle70 4y ago
Such a textbook example of confirmation bias. You have certain conviction, and you dig deep until you find some references to it, and then declare that your conviction is vindicated. My conviction is that the growth in corporate profits is driven primarily by technology advance and globalization. And no, globalization is not a one way street, only benefiting corporates. China achieve their economy growth and their status as superpower, lifting a billion people out of poverty, thank in no small part to the large and rich market of developed countries they've been able to access. The growth is slow down because temporary roadblocks such as the pandemic and financial measures countries adopted to counter it. Geopolitics also play a role. Globalization is well and alive still, and while it will evolve, it is not reversible. We will not go back to the world pre-1990s.
- gazarullz 4y ago
  What makes you think that it wont reverse? Look at what is happening to the chip wars between Us, EU and China, and the energy crisis in Europe. My thought is that we are witnessing the beginning of the end of globalization.
  - pclmulqdq 4y ago
    That happens every time an empire declines. The Roman empire had a globalized economy, and that ended up collapsing into the medieval period of hyper-localization. The collapse of the Dutch and British empires had similar results. The American empire is collapsing now, and globalization is the first casualty. Fun fact: Victorian England even had several very successful uber-like businesses (phone ordering aggregators in this case).
- Aunche 4y ago
  It's funny that that anti-globalists like to frame it as them caring about the "poor sweatshop workers" without considering the sentiments of those workers. They think that taking away the little economic choice that these people have would be a great boon for them. Globalization isn't just good for developing nations, it benefits developed ones as well. American's dominance in technology, finance, and entertainment would not be possible to sustain without it.
bradleyjg 4y ago
> outsourcing manufacturing abroad to sweatshop zones > importation of cheap and often undocumented labor from poor countries > That's the essence of what its dectractors (including myself) call the neoliberal economic model. This is the economic nationalist (i.e. Trumpist) critique dressed up for polite company. You and the rest of the economic nationalists have no plan to make the lives of people in “sweatshop zones” or those desperately escaping them to the west, better. You are attempting to exploit pathos on their behalf to make their lives actively worse by shutting down the movement of goods and labor. At least Trump is honest about it.
- matt2019 4y ago
  Your counterpoint assumes there’s a win-win that’s possible. But sometimes that’s wishful thinking. Imperialists have always convinced themselves that they’re actually helping the peoples they intervene on, but they’re often wrong.
  - bradleyjg 4y ago
    And the migrants are they worse off too? Is anyone allowed to decide for himself what his best option is?
cratermoon 4y ago
The Limits to Growth, 1972. https://www.clubofrome.org/publication/the-limits-to-growth/ https://www.clubofrome.org/publication/the-limits-to-growth/
deleted 4y ago
[deleted]

theironhammer 4y ago

Excellent analysis! I would add investment in low risk high returns ventures like software as opposed to high risk lower returns ventures like brick and mortar factories.

astrange 4y ago
Calling things neoliberal isn’t an incisive economic analysis, it’s a way to get upvotes from people in SF who claim to be Marxists and whose parents are rich landlords. Many of the “neoliberal” things that supposedly happened did not actually happen. https://noahpinion.substack.com/p/was-there-really-a-neoliberal-turn https://noahpinion.substack.com/p/was-there-really-a-neolibe...
- VictorPath 4y ago
  Speaking of Karl Marx, he made the exact same prediction as this paper does, only he did it a century and a half ago ( https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... )

dvt 4y ago

> That's the essence of what its dectractors (including myself) call the neoliberal economic model. The impact of "cheap and often undocumented labor from poor countries" is minuscule, especially considering the sectors that have the highest profit margins aren't low-skill manufacturers, but rather finance, tech, real estate, private equity, and so on. There are two main issues at play here: corporate debt levels, and interest rates. The article does a pretty good job of covering both, and trying to spin the past few decades as some sort of "corporate colonialism" is missing the forest for the trees.

leereeves 4y ago
The profit margins in finance and real estate were only possible because "corporate colonialism" prevented wages and consumer prices from rising along with asset prices. If real consumer prices hadn't been driven down by reduced manufacturing costs, then the lower interest rates that drove up asset prices would have led to consumer inflation and wouldn't have been politically viable. And if American labor had been able to demand a greater share of the wealth created over the past forty years, then corporate profits would have been far lower.
- dvt 4y ago
  > easy money policies that were only possible because.. I would push back a bit. First, I think these easy money policies are basically "possible" whenever the Fed mandates them (and the markets simply react accordingly). My point here is that they actually don't have to be rooted in any kind of fundamentals. Even now, the Fed is basically willing to blow up foreign markets (which might seem irrational) because it doesn't want Americans to go through inflation. Second, while I do agree that cheap labor has enabled some of this, it's mostly due to China's insistence on treating its citizens like chattel; and, yes, to some extent the West being complicit, though calling it colonialism deflects blame from the true architects of this evil: the CCP. > and if American labor had been able to demand a greater share of the wealth The way I see things, wealth demanded is a function of leverage. American labor has no leverage when compared to Chinese labor (maybe apart from quality), and therefore always loses out.

andrepd 4y ago

I wouldn't strike through those two factors to be honest. Monetary policy since 2008 has benefited capital and harmed labour. And the ideologically driven cut on corporate tax (and on the highest bracket income tax marginal rates as well) since the 1980s has also had a similar effect (see how CEO pay has skyrocketed)

skippyboxedhero 4y ago
I think the author 100% knew what he was doing by not mentioning QE directly at any point. It isn't just since 2008, the cut in 03-04 to 1% was basically why synthetic CDOs were invented...it is amazing that this happened twenty years ago, and there is still a "debate" about the long-term financial consequences of very low interest rates/QE. Also, the issue with corporate taxes has been more to do with European tax havens. Places like Netherlands, Ireland, Luxembourg got very aggressive in offering corporations bilateral deals (i.e. bespoke deals on corporation tax outside the legal framework that applied to domestic companies). The US tax rate in the early 2010s was still 35%, it was only when revenue began moving offshore that the US felt the need to cut (not just the US, the same thing happened in the UK). The global minimum corporation tax deal is supposed to tackle this but, to be honest, the US should have cracked down on individual countries far sooner.
- sooheon 4y ago
  > Figure 2 makes clear that a key driver was the decline in corporate interest rates—which itself largely reflects the steady, decades-long march down in Treasury yields. This is a direct reference to QE.
subradios 4y ago
Corporate tax does not help or hurt labor. Corporations do not pay taxes - their customers or their employees do. The only way that a corporate tax is better for the worker than not a corporate tax is if that money will be better spent by the government. We cannot show this to be true, because very often government funds are utilized to fund programs and projects that are primarily ideologically motivated instead of mere improvements to facilities and entitlements we all use. Additionally sectors that have largesse of government spend (Medicare, military procurement, California HSR) start to morph to maximally abuse procurement bureaucracy and obtain monopoly power rather than provide service. These problems are solvable to be clear, but it doesn't strike me as obvious that the money Amazon makes is spent better by Congress than by Amazon in every possible case.

daniel-cussen 4y ago

sooheon 4y ago

Why must everything always be only one thing? Why not both? The decline in taxes and interest rates mechanically account for 1.8% points of the 5.4% net income growth in the SP500 since 2004. This is not in dispute, unless you don't trust the numbers. Outsourcing and cost cutting account for some of the difference between sales growth (2%) and EBIT growth (3.6%), or 1.6% growth. Basically if you only sell a little bit more, but your costs go down, you can take home more earnings. But it's not a given that 100% of this 1.6% gap comes from sweatshops, there have been some legitimate reductions to cost of labor domestically, unless you think literally nothing has changed about productivity in the last 18 years. So sweatshops account for a maximum of 1.6% of returns, likely less, while taxes and cheap credit account for 1.8%. Outsourcing is not "the primary issue", mathematically.

deleted 4y ago

[deleted]

jryle70 4y ago

Such a textbook example of confirmation bias. You have certain conviction, and you dig deep until you find some references to it, and then declare that your conviction is vindicated. My conviction is that the growth in corporate profits is driven primarily by technology advance and globalization. And no, globalization is not a one way street, only benefiting corporates. China achieve their economy growth and their status as superpower, lifting a billion people out of poverty, thank in no small part to the large and rich market of developed countries they've been able to access. The growth is slow down because temporary roadblocks such as the pandemic and financial measures countries adopted to counter it. Geopolitics also play a role. Globalization is well and alive still, and while it will evolve, it is not reversible. We will not go back to the world pre-1990s.

gazarullz 4y ago
What makes you think that it wont reverse? Look at what is happening to the chip wars between Us, EU and China, and the energy crisis in Europe. My thought is that we are witnessing the beginning of the end of globalization.
- pclmulqdq 4y ago
  That happens every time an empire declines. The Roman empire had a globalized economy, and that ended up collapsing into the medieval period of hyper-localization. The collapse of the Dutch and British empires had similar results. The American empire is collapsing now, and globalization is the first casualty. Fun fact: Victorian England even had several very successful uber-like businesses (phone ordering aggregators in this case).
Aunche 4y ago
It's funny that that anti-globalists like to frame it as them caring about the "poor sweatshop workers" without considering the sentiments of those workers. They think that taking away the little economic choice that these people have would be a great boon for them. Globalization isn't just good for developing nations, it benefits developed ones as well. American's dominance in technology, finance, and entertainment would not be possible to sustain without it.

bradleyjg 4y ago

> outsourcing manufacturing abroad to sweatshop zones > importation of cheap and often undocumented labor from poor countries > That's the essence of what its dectractors (including myself) call the neoliberal economic model. This is the economic nationalist (i.e. Trumpist) critique dressed up for polite company. You and the rest of the economic nationalists have no plan to make the lives of people in “sweatshop zones” or those desperately escaping them to the west, better. You are attempting to exploit pathos on their behalf to make their lives actively worse by shutting down the movement of goods and labor. At least Trump is honest about it.

matt2019 4y ago
Your counterpoint assumes there’s a win-win that’s possible. But sometimes that’s wishful thinking. Imperialists have always convinced themselves that they’re actually helping the peoples they intervene on, but they’re often wrong.
- bradleyjg 4y ago
  And the migrants are they worse off too? Is anyone allowed to decide for himself what his best option is?

cratermoon 4y ago

The Limits to Growth, 1972. https://www.clubofrome.org/publication/the-limits-to-growth/ https://www.clubofrome.org/publication/the-limits-to-growth/

deleted 4y ago

[deleted]