Moving 5% of GDP to labor's share . . . would it hurt the economy?

[arkirk]

That sort of analysis is very narrow minded. We do not deduct depreciation from human capital in the calculation of labor income. I wonder what the shares would look like if we had an agreed upon methodology for calculating the replacement cost of human capital and deducted that from labor income as well.

You aren't making any sense. Typically one's human capital value increases with more job experience and training. This increase in value would need to be _added_ to compensation under your scenario.

Not only that, but the analysis is to compare the changes over a time period. Feel free to post your own analysis that such human capital appreciation/depreciation is significantly worse today than previous time periods. The burden is on you to make your own case that it is relevant.

The point is we are all in this together. Rent takers and workers....got that. When the rent takers take too much, the workers begin to live dysfunctional lives, with bills not getting paid, illnesses not treated, proper diet not being afforded, eventually mortgages not being paid down, etc. etc. etc.

Actually your notion of skill accumulation through work experience is less true today for the vast majority of workers. The more employers rely on computer codes and robots to perform tasks, the less requirement the business has for skilled labor. (Often this is just a feeling of the management and not an actual fact.) The idea nonetheless is to reduce the worker's claim to being needed for production to occur, hence to reduce the worker's skills to a point where he/she has nothing to bargain with. So we have this commonly bantered term here by anti labor people....unskilled workers. The problem is that the purpose of any economy should only be to meet society's needs. The current economic model seeks to excise a portion of that society from consideration past the most cursory explanation of their worth being MINIMUM WAGE. This is a continuous argument around here and frankly I do not know why we allow it to survive.
Even if we do not have a license to destroy every ecosystem for profit, we still have to work together and engage in team work if we are to all do well. Why can't we come to an agreement on this aspect of the human condition?

 

[ksen]

Why can't we come to an agreement on this aspect of the human condition?

because that's socialism . . . and it'd be expensive (for some people)

 

[laughing dog]

That sort of analysis is very narrow minded. We do not deduct depreciation from human capital in the calculation of labor income. I wonder what the shares would look like if we had an agreed upon methodology for calculating the replacement cost of human capital and deducted that from labor income as well.

You aren't making any sense. Typically one's human capital value increases with more job experience and training. This increase in value would need to be _added_ to compensation under your scenario.

I realize this is difficult, but humans wear out as well, and require constant nutrition and attention for their upkeep. None of that is subtracted from labor income in order to come to "profit". Moreover, many people do literally wear out as they work.

Not only that, but the analysis is to compare the changes over a time period. Feel free to post your own analysis that such human capital appreciation/depreciation is significantly worse today than previous time periods. The burden is on you to make your own case that it is relevant.

I have showed some of the reasons your analysis is both one sided and incomplete. There are others: profit is profit. There is no logical reason to deduct depreciation (or capital consumption allowances) because capital erodes over time, especially since depreciation allowances are allowed to be gamed. There is no need to take your analysis seriously given the level of the gross economic errors it entails.

 

[Axulus]

You aren't making any sense. Typically one's human capital value increases with more job experience and training. This increase in value would need to be _added_ to compensation under your scenario.

I realize this is difficult, but humans wear out as well, and require constant nutrition and attention for their upkeep. None of that is subtracted from labor income in order to come to "profit". Moreover, many people do literally wear out as they work.

Not only that, but the analysis is to compare the changes over a time period. Feel free to post your own analysis that such human capital appreciation/depreciation is significantly worse today than previous time periods. The burden is on you to make your own case that it is relevant.

I have showed some of the reasons your analysis is both one sided and incomplete. There are others: profit is profit. There is no logical reason to deduct depreciation (or capital consumption allowances) because capital erodes over time, especially since depreciation allowances are allowed to be gamed. There is no need to take your analysis seriously given the level of the gross economic errors it entails.

What errors? Please point to the specifc error in the paper. Net capital income is a well established concept. You really should look more into it. Net capital income represents the actual sustainable cashflow that can be distributed to capital owners. The error appears to be your own misunderstanding of the concept.

And also, are you forgetting that it is you and ksen arguing that profits should be shifted back to labor? The whole debate is about profits from where? If net capital profits have not increased relative to GDP except for the housing sector (meaning the actual amount of sustainable cash available for capital owners, as a percent of all such income in the economy, has not increased), then it is a factually spurious claim to say to just take that extra cash profit from the non housing sector and increase everyone's wages when there is no actual additional cash available to do so compared to prior periods, regardless of how quickly a worker "wears out".

The only actual increase in net capital income is coming from the housing sector, so I'll ask you the same question I asked ksen, how do you propose to decrease real estate's share of income in the economy?

 

[Loren Pechtel]

Depends on where and how you are going to try and get that increase.

How about from the places the decrease went to and by reversing some policies that helped it happen?

Why don't you start it--throw away all your computers.

Evidence given: {}

Loren Pechtel, what is asserted without evidence can be dismissed without evidence. Including many of your assertions, it must be pointed out.

The point is that the cause of the increasing disparity is that the extra money is going to pay for automation. It's the result of the information age.

I think that Peter Turchin, Thomas Piketty, and others have MUCH better explanations: elites trying to enrich themselves at the expense of the rest of the population. Because that's been happening with forcing down of wages and benefits.

I'm sure that the capitalism groupies here will howl with outrage at how I blasphemed their gods, but if that's how they are going to react to unpleasant truths, then so be it.

You complain about my not proving it's the computers and yet you provide no evidence either--and your answer ignores the fact that competition for workers pretty much prevents companies from exploiting them in good times.

 

[Loren Pechtel]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock and if you deduct the increase in the share going to housing (mortgage interest, rents). Don't forget that GDP does not take into account depreciation in the capital stock, so if you ignore any changes in this aspect, you are missing the bigger picture. Greater depreciation (from two factors: capital investment losing its value quicker or though having greater real value of capital investment per capita) means more must be reinvested just to maintain the country's capital stock.

Another side of the same coin I was saying: increased spending on automation. I was looking at it as a one-time expense, you're looking at it as ongoing depreciation but it's really the same thing in either case.

 

[Loren Pechtel]

Nervous nellies, Axulus and Coloradoatheist will be back to you shortly with their "camel's nose in the tent" argument. They really worry a lot that the filthy rich remain filthy rich. I don't think either one of them are filthy rich. They have simply had a little too much free market cool-aide. That 5% would be a lot more than a 5% raise for the recipients and just a 5% drop in profits. It certainly is affordable. Their fear is that when the rabble gets 5% it will develop the same greedy hunger for money the 1% has. That may just take a little time to develop. Actually we need to add environmental restraints to our economy in addition to distributive justice. Environmental adjustment of our society will hurt the 1% a whole lot more than a mere 5% income adjustment. Unlike the distributive issue, the environmental one cannot be bullied out of existence of brought under control without massive changes to our economy.

Try again. Lets take the numbers from a company where I knew the numbers:

In good times, wages were 30%, profit was less than 10%. Raise wages 5% and profit drops at least 15%.

For industries without high capital costs the ratio will be even higher.

 

[lpetrich]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock ...

How is this financial jiggery-pokery supposed to be very different in 2015 from (say) 1965?

 

[laughing dog]

What errors? Please point to the specifc error in the paper. Net capital income is a well established concept. You really should look more into it. Net capital income represents the actual sustainable cashflow that can be distributed to capital owners. The error appears to be your own misunderstanding of the concept.

Wrong again. Depreciation is an accounting cash flow that goes to the owners of capital.

And also, are you forgetting that it is you and ksen arguing that profits should be shifted back to labor? ...

I never argued a goddamn thing about shifting profits. I pointed out your post had tremendous holes in it because it treats capital income differently than labor income.

 

[ksen]

Nervous nellies, Axulus and Coloradoatheist will be back to you shortly with their "camel's nose in the tent" argument. They really worry a lot that the filthy rich remain filthy rich. I don't think either one of them are filthy rich. They have simply had a little too much free market cool-aide. That 5% would be a lot more than a 5% raise for the recipients and just a 5% drop in profits. It certainly is affordable. Their fear is that when the rabble gets 5% it will develop the same greedy hunger for money the 1% has. That may just take a little time to develop. Actually we need to add environmental restraints to our economy in addition to distributive justice. Environmental adjustment of our society will hurt the 1% a whole lot more than a mere 5% income adjustment. Unlike the distributive issue, the environmental one cannot be bullied out of existence of brought under control without massive changes to our economy.

Try again. Lets take the numbers from a company where I knew the numbers:

In good times, wages were 30%, profit was less than 10%. Raise wages 5% and profit drops at least 15%.

For industries without high capital costs the ratio will be even higher.

you mean down to only 8.5%?

oh the horror!

 

[Axulus]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock ...

How is this financial jiggery-pokery supposed to be very different in 2015 from (say) 1965?

I'm not quite sure what you are asking, but here's a chart for ya:

http://www.brookings.edu/about/projects/bpea/papers/2015/land-prices-evolution-capitals-share

- - - Updated - - -

Wrong again. Depreciation is an accounting cash flow that goes to the owners of capital.

But net capital income share deducts the amount of cash that must be reinvested to maintain the capital stock at its current level. It is different from accounting depreciation.

It is the command of resources (i.e., sustainable cash flows that can be distributed to/commanded by capital owners to use for whatever purposes they desire) that is relevant when discussing inequality, not accounting income:

Gross versus net: concepts. An alternative to gross value added is net value added,
which subtracts depreciation. This can be divided into labor and net capital income; the
latter is gross capital income minus depreciation. Whether a gross or net measure is more
appropriate depends on the question being asked: the allocation of gross value added between
labor and gross capital more directly reflects the structure of production, while the
allocation of net value added between labor and net capital reflects the ultimate command
over resources that accrues to labor versus capital.

For instance, in an industry where most of the output is produced by short-lived software,
the gross capital share will be high, evincing the centrality of capital’s direct role in
production. At the same time, the net capital share may be low, indicating that the returns
from production ultimately go more to software engineers than capitalists—whose return
from production is offset by a loss from capital that rapidly becomes obsolete.

Both measures are important: indeed, a rise in the gross capital share in a particular
industry is particularly salient to an employee whose job has been replaced by software,
and it may proxy for an underlying shift in distribution within aggregate labor income—
for instance, from travel agents to software engineers. The massive reallocation of gross
income in manufacturing from labor to capital, documented by Elsby et al. (2013), has
certainly come as unwelcome news to manufacturing workers. But when considering
the ultimate breakdown of income between labor and capital, particularly in the context
of concern about inequality in the aggregate economy, the net measure is likely more
relevant. This point is accepted by Piketty (2014), who uses net measures; the general
rationale for excluding depreciation is pithily summarized by Baker (2010), who remarks
that “you can’t eat depreciation."

http://www.brookings.edu/~/media/projects/bpea/spring-2015/2015a_rognlie.pdf

 

[lpetrich]

The point is that the cause of the increasing disparity is that the extra money is going to pay for automation. It's the result of the information age.

Evidence: {}

You complain about my not proving it's the computers and yet you provide no evidence either

I don't have to. It's your theory so you are the one who has the burden of proof. I think that Peter Turchin and Thomas Piketty have provided plenty of *evidence* for what has been going on.

and your answer ignores the fact that competition for workers pretty much prevents companies from exploiting them in good times.

Evidence: {}

 

[Canard DuJour]

I've posted this before, but the percent of GDP to profit has not increased if you deduct depreciation in the capital stock ...

How is this financial jiggery-pokery supposed to be very different in 2015 from (say) 1965?

Turns out the IT revolution has increased production costs so much that the apparent gains in the share of revenue going to profit has been eaten up. It's just that firms are incapable of reporting it and you have to feed the economic data through neo-classical models to see it.

 

[laughing dog]

But net capital income share deducts the amount of cash that must be reinvested to maintain the capital stock at its current level. It is different from accounting depreciation....

It still deducts cash from profits based on its definition. That does not alter the fact it is a cash flow that is part of profits. Just like profits are determined after the expenses of operating and maintaining capital are deducted from revenue in order to get to profits.

Notice that nothing similar is done to the revenue to labor in determining labor income. Which is why the comparison are lopsided: a chunk of "profit" to labor is not considered "profit" or "net income" to capital.

 

[ksen]

Silly dog, labor doesn't have any cost to maintain and it doesn't wear out over time.

That's why it's ok to pay it as little as possible.

 

[Canard DuJour]

But net capital income share deducts the amount of cash that must be reinvested to maintain the capital stock at its current level. It is different from accounting depreciation....

It still deducts cash from profits based on its definition. That does not alter the fact it is a cash flow that is part of profits. Just like profits are determined after the expenses of operating and maintaining capital are deducted from revenue in order to get to profits.

Exactly, and otherwise the claim is absurd :

Real mean wages have been static since about the 1970s. Take real estate out of the picture, and so have profits from production because computerization has increased operating costs in proportion to gross increase in revenue ..

It's the sort of thing a 25 yr old economics post-grad with no clue about the real economy might say.

Notice that nothing similar is done to the revenue to labor in determining labor income. Which is why the comparison are lopsided: a chunk of "profit" to labor is not considered "profit" or "net income" to capital.

 

[ksen]

It's the sort of thing a 25 yr old economics post-grad with no clue about the real economy might say.

Um . . . close!

Meet the 26-year-old who’s taking on Thomas Piketty’s ominous warnings about inequality

 

[coloradoatheist]

It's the sort of thing a 25 yr old economics post-grad with no clue about the real economy might say.

Um . . . close!

Meet the 26-year-old who’s taking on Thomas Piketty’s ominous warnings about inequality

We'll see how his work is received by the economic community.

 

[Loren Pechtel]

Wrong again. Depreciation is an accounting cash flow that goes to the owners of capital.

And also, are you forgetting that it is you and ksen arguing that profits should be shifted back to labor? ...

I never argued a goddamn thing about shifting profits. I pointed out your post had tremendous holes in it because it treats capital income differently than labor income.

You're missing the point.

Yes, depreciation is bookkeeping--but it reflects actual previous expenditure. In almost all cases a dollar of depreciation means you previously spent a dollar.

 

[laughing dog]

You're missing the point.

Yes, depreciation is bookkeeping--but it reflects actual previous expenditure. In almost all cases a dollar of depreciation means you previously spent a dollar.

You're right. I missed that point because it is irrelevant to the discussion.