Inequality

[The Brain]

Swedish GDP/hour.





Part of total production cost that's wages.

[Syt]

Part of total production cost that's wages.

Interesting, considering that German corporations usually keep harping about too high wage costs in Germany.

But then again, corps like to threaten "OMGWTFBBQ IF WE DON'T GET WHAT WE WILL MOVE THE JOBS ELSEWEIR!!!111one"

[Ideologue]

Now you find yourself in '82. What's next?

[The Minsky Moment]

As you yourself say, the earliest GATT rounds dealt only with trade liberalization.  The one necessary precondition for globalization was liberalization of capital markets.  And I may be wrong, but I think that particular round of GATT coincides more or less with the opening of China, and both coincide more or less with the time frame you're focusing on.

Time frame is too late.  Capital market liberalization was a later focus of the Uruguay Round during the 90s and China likewise was not a significant factor in international trade and finance until the mid-90s.

[Admiral Yi]

Time frame is too late.  Capital market liberalization was a later focus of the Uruguay Round during the 90s and China likewise was not a significant factor in international trade and finance until the mid-90s.

Then add in the computer revolution, which dramatically altered the cost ratio of labor and capital.

[The Minsky Moment]

PART IV

To sum up to date: the basic neo-classical model predicts that there shouldn't be long-term divergence between the marginal product of labor and its price (wage).  Post war data from the US indicate this roughly holds from about 1947-1981/2, but that after that point divergence occurs and steadily grows over the next 3 deades.  That focuses the search on some phenomena that (a) experienced a sharp discontunuity in the late 70s/early 80s, and (b) break the model.  IMO this disqualifies common explanations like technology/automation or de-industralization, which have been continuous phenemona throughout the entire post-war period (and which are accounted for theoretically in the neo-classical model), or off-shoring/China which doesn't really take off in a sigificant way until the 90s.  That leads me to focus on financialization which does seem to take off in a hockey-stick graph kind of way starting around the late-70s.

At the high level of theory in the neo-classical model, all markets clear and quickly reach equilibrium.  However, the model is based on a barter economy - it does not take into account financial assets.  JS Mill previewed this shortcoming well in connection with the earlier classical school - he noted that Say's Law, which states that all markets clear and thus gluts and overproduction are not possible - does not hold strictly in a world of financial assets, which breaks the continuity between the purchase and sale of physical commodities.  In other words, in a world of financial assets, a seller of a commodity does not have to simultaenously purchase something else (and hence create the conditions of employment that support its production).  Rather, he can choose to increase holdings of financial assets and thus delay the positive employment impact.

That brings us to basic monetary theory.   The demand for financial assets is often categorized by three basic motives: transactional, precautionary and speculative.  The transactional motive is the need to provide a monetary lubricant to commerce and eliminate the inefficiencies and matching problems inherent in pure barter.  The transactional motive practically translates in the need to hold a certain amount of financial assets (money) in rough proportion to the amount of real transactions.  It is basically a small cost of "doing business" at the economy-wide level and as such does not really disturb the neo-classical model.

The precautionary motive is equivalent to Keynes' notion of liqudiity preference and reflects the motivation to hold financial assets as a store of value to hedge against uncertainty and the risk of economic collapse.  The speculative motive - the desire to hold financial assets in order to reap economic profits from doing so -  is the flip side of the same coin.  The precautionary motive and the speculative motive are both forces that drive people to hold more financial assets than strictly required for transactional purposes; in the case of the precautionary motive, the demand is for safe financial assets, whereas the speculative motive drives demand for risky financial assets.  Both motives are not accounted for in the basic neo-classical model, and as JS Mill observed back in the 1840s, they break it by permitting conditions of excess production and stagnation (depression).  Keynes' General Theory still remains the classic theory of how the precautionary demand for money in times of uncertainty can result in a recessionary dis-equilibrium; the Austrians and Minsky did the same concerning how the speculatuive motive can cause unsustainable booms that create the seeds of the crash.

That is the basic theory, what remains is to apply it to the facts at hand.

[Jacob]

I can't wait to see what happens next 

[Oexmelin]

PART V: Profit ?

[alfred russel]

So I admit that I put out a poorly enunciated argument and that I cut it off half way because I needed to leave, but does anyone have a comment on my point of view that the "financial innovation" of the past 30-40 years wasn't due to deregulation but rather new demand?

A part of the argument for this that I didn't add was the collapse of Bretton Woods.

[crazy canuck]

PART V: Profit ?

Yeah, that is what I am thinking.  Just looking at the Canadian scene. A lot of our major corporations showed increasing profitability while wages grew slowly - except amongst the executive suite.  Just look at our banks - sorry Yanks had to be said.

I dont think this is a story of executives creaming off all the dough though.  I think this is a story that started out as a desire to boost shareholder return but all too often ended poorly.

[Jacob]

Yeah, that is what I am thinking.  Just looking at the Canadian scene. A lot of our major corporations showed increasing profitability while wages grew slowly - except amongst the executive suite.  Just look at our banks - sorry Yanks had to be said.

I dont think this is a story of executives creaming off all the dough though.  I think this is a story that started out as a desire to boost shareholder return but all too often ended poorly.

Yeah, that sounds about right. The huge growth in executive pay was the result of competition in the very narrow labour market of people who could boost shareholder returns exponentially.

... that's my uneducated guess.

[Admiral Yi]

So I admit that I put out a poorly enunciated argument and that I cut it off half way because I needed to leave, but does anyone have a comment on my point of view that the "financial innovation" of the past 30-40 years wasn't due to deregulation but rather new demand?

A part of the argument for this that I didn't add was the collapse of Bretton Woods.

I imagine there wasn't much demand for currency swaps in a fixed exchange rate system.

[Admiral Yi]

Actually I think it's much harder to make the argument that financial innovations have occured in the total absence of demand.

[Jacob]

Actually I think it's much harder to make the argument that financial innovations have occured in the total absence of demand.

Is anyone arguing that?

[Admiral Yi]

Is anyone arguing that?

Anyone in the world?  I think so.  Fairly common trope in the progressive media that the purpose of financial innovation is to swindle people.