Posts Tagged ‘profits’

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The U.S. economy (measured in terms of total output or GDP) shrank in the first quarter of 2015—declining by 0.7 percent, which overturned the preliminary estimate of an increase of 0.2 percent that was reported last month.

But corporate profits (after tax, without inventory valuation and capital consumption adjustments) continued to rebound, rising 3.1 percent in the first quarter of 2015 from the fourth quarter of 2014, after falling 3 percent in the prior period. Even more dramatic, profits were up 9.2 percent from the same quarter a year earlier, the biggest increase since 2012.

Given the reported decline in economic growth, we can expect renewed debate about the statistical quirks in government data (having to do with seasonable adjustments and the like). But the real debate should be about the fundamental unevenness of the current recovery—with corporate profits soaring and everyone else being left behind.

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052215MikeLuckovichGraduation_Creators 

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I’m taking nominations for the best examples of dismal economic scientists.

While I wait for your suggestions, I’m going to offer two of my own nominations: Tyler Cowen and Paul Romer.

I am nominating Cowen because, in his argument that the economy probably needs a “reset,” he only focuses on lowering workers’ wages. First, he makes no mention of resetting corporate profits or the incomes of those at the very top, as if what they manage to capture were completely off limits. All the adjustment in the new, “grimmer future” will be born by those at the bottom. Second, he completely overlooks the mechanisms of his own economic theory: if lower rates of economic growth are the product of lower rates of growth of available workers (a key factor in the theory of secular stagnation), then the relative scarcity of workers should mean higher—not lower—wages. In other words, Cowen is determined to make sure all the costs of the new, slower-growing economy will be born by shifted onto those who can least afford it. For that reason, I nominate Cowen for the title of dismal economist.

I also want to nominate Romer, who continues to double down on his “mathiness” argument, by asserting (against all the work that has taken place in the philosophy of science in recent decades) that (a) there’s a single truth, (b) that truth can only be obtained via science, and (c) mathematical modeling is the singular method for making progress in science to obtain truth. There are so many things wrong with each of those assertions it’s hard to know where to begin. And I won’t, at least right now. Let me just say Romer deserves his nomination as one of the most dismal economists because of the extraordinary arrogance, pretentiousness, and ignorance of the following statements:

About math:. . .I’ve seen clear evidence that math can facilitate scientific progress toward the truth.

If you think that math is worthless or dangerous, I’m sure that there are people who will be happy to discuss this with you. I’m not interested. I’m busy.

About truth and science: My fundamental premise is that there is an objective notion of truth and that science can help us make progress toward truth.

If you do not accept this premise, I’m sure that there are people who would be happy to debate it with you. I’m not interested. I’m busy.

And please do not write to tell me that science is a social process or that the progress it makes toward the truth can be irregular. I know.

Me, I’m not too busy to discuss either the fundamental injustices of contemporary capitalism or the often-worthless and dangerous role mathematics, truth, and science have played and continue to play in the discipline of economics.

I’m also not too busy to post additional nominations for dismal economists.

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Tyler Cowen has made a bit of a splash with his argument that, here in the United States, we’re probably in the midst of an economic “reset.”

What does Cowen mean? Essentially, his argument is that economic growth may continue at relatively low levels for the foreseeable future (in contrast to the higher rates of growth following on other postwar recessions), that low and stagnant wages will likely continue (his examples are lower salaries of adjunct faculty, two-tier wage systems in manufacturing, and lower wages for college graduates), and there’s probably not much government policy can do to avoid this “grimmer future.”

In this, Cowen is basically echoing the concerns expressed by others, in the form of the “new normal” (associated with, among others, PIMCO boss Mohamed El-Erian) and “secular stagnation” (which Larry Summers [pdf], among others, has been arguing).

My view, for what it’s worth, is Cowen is both right and wrong. He’s right in the sense that we have witnessed, and will likely continue to experience, a relatively slow recovery from the crash of 2007-08. That’s why I continue to refer to our current situation as a Second Great Depression. And, as we have seen, what recovery there has been during the past six years has mostly benefited those at the very top. The rest of the population has already been forced to “reset” their expectations in terms of stagnant wages and salaries.

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But Cowen is also wrong, in the sense that he’s only focused on the last few years. His view is that recent rates of economic growth have been relatively low (by postwar standards), and that trend may continue into the future (thereby requiring those at the bottom to revise their expectations downward). What he misses is the fact that a fundamental “reset” of the U.S. economy has been taking place for much longer, since at least the mid-1970s. Since then, we’ve seen the profit share growing and the labor share declining—a long-term trend that has only been exacerbated since the crash of 2008-08.

Or, if you want a different sort of evidence, consider taking a look at George Packer’s magnificent book, The Unwinding: An Inner History of the New America. Using fascinating profiles of several Americans (and a dos Passos-like sprinkling of alarming headlines, news bites, song lyrics, and slogans), Packer offers an epic retelling of American history from 1978 to 2012—of a shrinking middle-class and an economy that has lost its ability to offer any significant hope for recovery for the majority of the population.

It’s that unwinding—which we’ve been living through for almost four decades now but which Cowen and others miss—that is going to require a fundamental “reset” of our economic system.

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