He's drawing an odd conflation between "reduced capital requirements" and "monopoly profits." There is such a thing as a helluva smart artist, like a Pablo Picasso, who can charge huge rates because he's incredibly good, not because he has a monopoly. Unless you consider "skill" or "taste" a monopoly, which is a rather bad use of the term.
-- Ernie P. On Jun 21, 2013, at 2:10 PM, [email protected] wrote: > > > > > NY Times > > Profits Without Production > By PAUL KRUGMAN > > Published: June 20, 2013 > > One lesson from recent economic troubles has been the usefulness of history. > Just as the crisis was unfolding, the Harvard economists Carmen Reinhart and > Kenneth Rogoff — who unfortunately became famous for their worst work — > published a brilliant book with the sarcastic title “This Time Is Different.” > Their point, of course, was that there is a strong family resemblance among > crises. Indeed, historical parallels — not just to the 1930s, but to Japan in > the 1990s, Britain in the 1920s, and more — have been vital guides to the > present. > > Yet economies do change over time, and sometimes in fundamental ways. So > what’s really different about America in the 21st century? > > The most significant answer, I’d suggest, is the growing importance of > monopoly rents: profits that don’t represent returns on investment, but > instead reflect the value of market dominance. Sometimes that dominance seems > deserved, sometimes not; but, either way, the growing importance of rents is > producing a new disconnect between profits and production and may be a factor > prolonging the slump. > > To see what I’m talking about, consider the differences between the iconic > companies of two different eras: General Motors in the 1950s and 1960s, and > Apple today. > > Obviously, G.M. in its heyday had a lot of market power. Nonetheless, the > company’s value came largely from its productive capacity: it owned hundreds > of factories and employed around 1 percent of the total nonfarm work force. > > Apple, by contrast, seems barely tethered to the material world. Depending on > the vagaries of its stock price, it’s either the highest-valued or the > second-highest-valued company in America, but it employs less than 0.05 > percent of our workers. To some extent, that’s because it has outsourced > almost all its production overseas. But the truth is that the Chinese aren’t > making that much money from Apple sales either. To a large extent, the price > you pay for an iWhatever is disconnected from the cost of producing the > gadget. Apple simply charges what the traffic will bear, and given the > strength of its market position, the traffic will bear a lot. > > Again, I’m not making a moral judgment here. You can argue that Apple earned > its special position — although I’m not sure how many would make a similar > claim for Microsoft, which made huge profits for many years, let alone for > the financial industry, which is also marked by a lot of what look like > monopoly rents, and these days accounts for roughly 30 percent of total > corporate profits. Anyway, whether corporations deserve their privileged > status or not, the economy is affected, and not in a good way, when profits > increasingly reflect market power rather than production. > > Here’s an example. As many economists have lately been pointing out, these > days the old story about rising inequality, in which it was driven by a > growing premium on skill, has lost whatever relevance it may have had. Since > around 2000, the big story has, instead, been one of a sharp shift in the > distribution of income away from wages in general, and toward profits. But > here’s the puzzle: Since profits are high while borrowing costs are low, why > aren’t we seeing a boom in business investment? And, no, investment isn’t > depressed because President Obama has hurt the feelings of business leaders > or because they’re terrified by the prospect of universal health insurance. > > Well, there’s no puzzle here if rising profits reflect rents, not returns on > investment. A monopolist can, after all, be highly profitable yet see no good > reason to expand its productive capacity. And Apple again provides a case in > point: It is hugely profitable, yet it’s sitting on a giant pile of cash, > which it evidently sees no need to reinvest in its business. > > Or to put it differently, rising monopoly rents can and arguably have had the > effect of simultaneously depressing both wages and the perceived return on > investment. > > You might suspect that this can’t be good for the broader economy, and you’d > be right. If household income and hence household spending is held down > because labor gets an ever-smaller share of national income, while > corporations, despite soaring profits, have little incentive to invest, you > have a recipe for persistently depressed demand. I don’t think this is the > only reason our recovery has been so weak — weak recoveries are normal after > financial crises — but it’s probably a contributory factor. > > Just to be clear, nothing I’ve said here makes the lessons of history > irrelevant. In particular, the widening disconnect between profits and > production does nothing to weaken the case for expansionary monetary and > fiscal policy as long as the economy stays depressed. But the economy is > changing, and in future columns I’ll try to say something about what that > means for policy. > > > -- > -- > Centroids: The Center of the Radical Centrist Community > <[email protected]> > Google Group: http://groups.google.com/group/RadicalCentrism > Radical Centrism website and blog: http://RadicalCentrism.org > > --- > You received this message because you are subscribed to the Google Groups > "Centroids: The Center of the Radical Centrist Community" group. > To unsubscribe from this group and stop receiving emails from it, send an > email to [email protected]. > For more options, visit https://groups.google.com/groups/opt_out. > > -- -- Centroids: The Center of the Radical Centrist Community <[email protected]> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org --- You received this message because you are subscribed to the Google Groups "Centroids: The Center of the Radical Centrist Community" group. 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