Posts Tagged ‘surplus’


Clearly, 2016 was a good year for CEOs. They’re on track to set a post-recession record for capturing their portion of the surplus.

According to a new Wall Street Journal analysis, median pay for the chief executives of 104 of the biggest American companies rose 6.8 percent for fiscal 2016—to $11.5 million. At the very top was Thomas Rutledge, CEO of Charter Communications, who took home $98.5 million last year. (Here’s a link to the compensation of the other CEOs in the study.)

By way of comparison (using data from the Bureau of Labor Statistics), average wages for production and nonsupervisory workers rose 2.5 percent, to $21.86. And their annual pay rose by the same percentage, to $36,725.

If you’re keeping track, that means the ratio of average CEO to average worker pay in 2016 was 299.5!


Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

productivity top1

And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

fredgraph (2)

It’s true (as I have argued many times on this blog), the number of U.S. manufacturing jobs has been declining for decades now—and they’re not coming back. Instead, they’ve been replaced (as is clear in the chart above) by service-sector jobs.



And, not surprisingly, most new jobs (during the past year, as in recent decades) have appeared in urban centers.

But the idea that service-sector job growth in some urban centers—or “brain hubs,” as The Geography of Jobs Enrico Moretti likes to call them—is going to solve the problem of the growing gap between haves and have-nots is simply wrong.

Moretti (and, with him, Noah Smith) would have us believe that everyone in the one America that is “healthy, rich and growing” (as against the other America, which is “increasingly being left behind”) stands to benefit. And they don’t need manufacturing jobs to do so.

But looking at the wages of those workers in the local service jobs celebrated by Moretti and Smith tells a very different story. Here they are, from the Bureau of Labor Statistics:

Teachers $22.70
Registered Nurses $32.45
Licensed Practical Nurses $20.76
Carpenters $20.24
Taxi Drivers $11.30


So, no, the growth of local service jobs in so-called brain hubs is not going to solve the problem of inequality that plagues the United States.


Nor for that matter is Trump’s promise to return manufacturing jobs to the United States.

Neither the old nor the new geography of jobs is going to solve the problem of the growing divergence between a tiny group at the top and everyone else. The cause lies elsewhere—in the same old story of a growing surplus that is captured by large corporations and wealthy individuals.

That’s the real problem that needs to be solved.


Noah Smith is right about one thing: mainstream economists tend to use the word “capital” pretty loosely.

It just means “anything you can spend resources to build, which lasts a long time, and which also can be used to produce value.” That’s really broad. For example, it could include society itself. It also typically includes “human capital,” which refers to people’s skills, talents, and knowledge.

But then Smith proceeds, like the neoclassical equivalent of Humpty Dumpty, to make his definition of human capital the master—because, in his view, “it helps to convey some important truths about the world.”

Human capital, as I’ve explained in some detail before, is a profoundly misleading concept.

I don’t want to repeat those arguments here. But I do want to make two additional points.

First, if Smith wants to invoke human capital to say “education and skills are a form of wealth,” then why not include other ways people are able to earn more or less than their counterparts? Why not, for example, go beyond his reference to credentials (he has a Stanford degree) and intellectual abilities (apparently, he can do math well and write well) and refer to some of the other important ways people are sorted out within existing economic relations. I’m thinking of such things as gender, race and ethnicity, immigration status, and so on. They’re all ways workers are able to receive more or less income that have nothing to do with the effort they put into their jobs. Does Smith want to argue that masculinity, whiteness, and native birth are forms of human capital?

No, I didn’t think so.

Second, there’s the issue of capital itself. When capital is treated as a thing (which is what one finds in Smith’s account, as in most versions of mainstream economics), then it’s possible to forget about or overlook the historical and social conditions necessary for those things to operate as capital. Buildings, machinery, and raw materials, robots and computer software, even skills, talents, and knowledge—they only operate as capital within particular economic relations. Only when workers are forced to have the freedom to sell their ability to work to a small group of employers, only then does capital become a means to extract surplus labor from those workers. Once appropriated, that surplus labor then assumes a variety of different, seemingly independent forms—from capitalist profits to land rents, including payments to merchants and finance, the super-profits of oligopolies, taxes to the state, and, yes, the salaries of CEOs and supervisors.

But those payments are not “returns” to independent forms of capital, human or otherwise. They’re all distributions of the surplus-value that both presume and produce the conditions under which laborers work not for themselves, but for their capitalist employers.

They, and not the various meanings neoclassical economists attribute to capital, are the real masters.


Oxfam’s headline-grabbing numbers are bad enough: “Eight men are as rich as half the world.” But the international organization has presented an even more serious and severe indictment of current economic arrangements—which can’t be glossed over by merely encouraging those at the top to pay more taxes.

In the background paper, “An Economy for the 99 Percent” (a follow-up to last year’s “An Economy for the 1%“), Oxfam researchers both document the existence of grotesque levels of economic inequality in the world today and analyze the main causes of that inequality.

Regular readers of this blog will recognize the numbers indicating the obscene levels of contemporary inequality:

  • Since 2015, the richest 1% has owned more wealth than the rest of the planet.
  • The incomes of the poorest 10% of people increased by less than $3 a year between 1988 and 2011, while the incomes of the richest 1% increased 182 times as much.
  • A FTSE-100 CEO earns as much in a year as 10,000 people in working in garment factories in Bangladesh.
  • In the US, new research by economist Thomas Piketty shows that over the last 30 years the growth in the incomes of the bottom 50% has been zero, whereas incomes of the top 1% have grown 300%.
  • In Vietnam, the country’s richest man earns more in a day than the poorest person earns in 10 years.

But it’s the analysis behind those numbers that, in my view, deserves even more attention.

Oxfam starts where they should, with the key institution within global capitalism: corporations.

Businesses are the lifeblood of a market economy, and when they work to the benefit of everyone they are vital to building fair and prosperous societies. But when corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.

Corporations are where much of the world’s surplus (at least the surplus that is created within the bounds of capitalism) is both appropriated and distributed. In recent years, corporate profits have been rising because they’ve been able to squeeze their own workers, by forcing more of them to work not for themselves but for corporate giants and, when they do, paying them a smaller and smaller share of the value that is created. And corporations have managed to get even more of the surplus by squeezing small producers, who are forced to have the freedom to sell their goods and services to those corporations, and by using “their huge power and influence to ensure that regulations and national and international policies are shaped in ways that enable continued profitability.” Then, once they’ve managed to get more surplus, corporations have been able to keep more of it, by “paying as little tax as possible.” Finally, corporations have been “paying out an ever-greater share of these profits to the people who own them,” such that the small group of already-wealthy shareholders have been able to receive a large share of the surplus.

What we have then is a Second Gilded Age, “in which a glittering surface masks social problems and corruption.” And, of course, “once a fortune is accumulated or acquired it develops a momentum of its own.”

The huge fortunes we see at the very top of the wealth and income spectrum are clear evidence of the inequality crisis and are hindering the fight to end extreme poverty. But the super-rich are not just benign recipients of the increasing concentration of wealth. They are actively perpetuating it.

One way this happens is through their investments. As some of the biggest shareholders (particularly in private equity and hedge funds), the wealthiest members of society are huge beneficiaries of the shareholder worship that is warping the behaviour of corporations.

The end result is exactly what one would expect: “Eight men now own the same amount of wealth as the poorest half of the world.”


Like many liberal economic nationalists, who are concerned about both inequality and economic growth, Michael Lind attempts to make a distinction between “takers” and “makers.”

As against conservative economic nationalists, who blame immigrants and the welfare-dependent poor, Lind focuses his attention on the “rent-extracting, unproductive rich” for undermining the dynamism and fairness of contemporary capitalism.

The term “rent” in this context refers to more than payments to your landlords. . . “Profits” from the sale of goods or services in a free market are different from “rents” extracted from the public by monopolists in various kinds. Unlike profits, rents tend to be based on recurrent fees rather than sales to ever-changing consumers. While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.

This is a familiar trope within economic discourse. As I’ve explained before (e.g., here and here), it relies on a distinction between productive and unproductive economic activities, which is then overlain with other dichotomies: active vs. passive, doing vs. owning, and so on. The idea is that one group—the passive, owning, recipients of rent—increasingly serve as a drag on the other group—the active, doing, recipients of profits.

If one or more of the sectors providing inputs or infrastructure to productive industry charges excessive rents, then industry can be strangled.  Industry cannot flourish if too much rent is paid to landlords, if credit is too expensive, if excessive copyright protections stifle the diffusion of technology. . .

All of this suggests that, if we want a technology-driven, highly productive economy, we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate and energy and energy and mineral deposits) or artificial (chartered banks, professional licensing associations, labor unions, patents and copyrights). This is a valid distinction between “makers” and “takers.”


Basically, Lind is privileging the profits that are received by productive capitalists from their supposed doing activities (the blue line in the chart above) and calling into question the profits that are received through the rent-seeking activities of financial capitalists (the red line in the chart above).

It’s a powerful idea, and one that—after the spectacular crash of 2007-08, the subsequent bailout of Wall Street, and the uneven recovery since then—stands to garner a great deal of attention and sympathy.

There are, however, two fundamental problems with Lind’s distinction between profit-oriented makers and rent-seeking takers.

First, Lind presumes that industrial capitalists would do more—more investing, and thus more job creating, more growth, and so on—if they had to pay lower rents to others, including rent-taking financial capitalists. While it is certainly the case that “industrialists” would have higher retained earnings if they distributed less of their profits in the form of rents (not only financial charges but also, as Lind explains, taxes, union wages, oil rents, healthcare premia, and so on), there’s no guarantee they would actually invest or accumulate more capital with those profits.

That is precisely the specter that is created when, as I explained the other day, the capitalist machine is broken. In recent decades, investment has increased much less than profits, thus calling into question the pact with the devil that historically has stood at the center of capitalism. Lind may be an economic nationalist but the industrialists he champions are not, and never have been.

The second problem is that Lind never offers an adequate explanation of where the profits of those industrial capitalists come from. He merely presumes they are the fair return to entrepreneurial, making activities.

But who is doing all that making—and who are the ones getting the profits? Non-financial corporate profits represent the extra value workers create during the course of producing commodities (both goods and services). The workers receive wages (more or less equal to the value of their labor power) and their employers receive the extra or surplus value those workers create (above and beyond the value of labor power). In other words, the profits of industrial capitalists stem from the exploitation of productive workers.

The surplus appropriated by the boards of directors of industrial capitalist enterprises is, in turn, distributed. One portion remains within those enterprises (in the form of retained earnings, executive and supervisory salaries, expenditures on new equipment and software, the hiring of additional workers, and so on), while another portion is distributed outside them (to shareholders, finance capitalists, merchants, the government, and so on). All of those payments—some of which Lind characterizes as profits, others as rents—represent distributions of the surplus.

In the end, then, there is no valid distinction between makers and takers. The appropriators of the surplus make nothing—and everyone who gets a cut of the surplus, in both industrial and financial enterprises, is a taker.

They are all, in Lind’s language, rich moochers who hurt America.


Mainstream economists and economic commentators continue to invoke the so-called “dignity of work” to criticize the idea of a universal basic income.

It’s an argument I’ve dealt with before (e.g., here and here). As I see it, there’s nothing necessarily dignified about most people being forced to have the freedom to sell their ability to work to a tiny group of employers. The idea may be intrinsic to capitalism—but that doesn’t mean it contributes to the dignity of people who work for a living, especially when they have no control over how they work or what they produce when they work.

Matt Bruenig, to his credit, suggests an alternative argument against the critics of a universal basic income:

these writers dislike the fact that a UBI would deliver individuals income in a way that is divorced from working. Such an income arrangement would, it is argued, lead to meaninglessness, social dysfunction, and resentment.

One obvious problem with this analysis is that passive income — income divorced from work — already exists.

Bruenig is making a distinction between income related to work and income that comes from other sources—passive or not-work—which represents a fundamental divide within contemporary society.

As is clear from the data in the chart above, very little of the income (15 percent in 2014) of the bottom 90 percent of Americans stems from not-work (and, even then, most of their apparently not-work income is actually related to previous work, in the form of pension incomes). However, for the tiny group at the top, most of their income (59 percent for the top 1 percent, 75 percent for the top 0.01 percent) is related to not-working (and, of course, most of their work-related income is based on sole proprietorships and elevated executive salaries). In other words, most of their income represents a claim on the extra work performed by others.

So, when critics of a universal basic income rely on the “dignity of work” argument, what they’re really doing is reinforcing the idea that most people can and should derive dignity from working for a small group of employers. At the same time, critics are presuming there’s no loss of dignity for the tiny group at the top, those who have managed to capture most of their income from sources related not to their own work, but the work of everyone else.*

Where’s the dignity in that?

*Now, it’s true, as Noah Smith observes, “many rich people believe that investing constitutes work.” But spending a few minutes a day reading the business press and examining alternative investments does not constitute work—at least as most people understand what it means to work. Or are those rich people referring to the fact that they hire a whole host of other people, from financial advisors to accountants, to do the actual work of managing their not-work investments?