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October 25, 2006

Dean Baker Speak

You listen:

The more important part of the story is that the stock market is supposed to represent the discounted value of future profits. If profits are expected to be higher because there is widespread optimism about more rapid growth, then this is genuinely good news, but if expected profits rise simply because investors anticipate further redistribution from wages to profits, then the vast majority of the public has little to celebrate. Even in the era of 401(k)s, three quarters of the public holds less than $25,000 of stock (including mutual funds in retirement accounts). So most people have little reaason to celebrate a redistributin from wages to profits. Since I have not heard many (any?) forecasters upping their growth projections, I assume that the stock rally is based on expectations of further redistribution, that is insofar as it has any basis in fundamentals at all.

October 25, 2006 | Permalink

Comments

Seems like a great arguement for individual social security accounts invested in the market to me. Hooray, the workers will own the means of production!

Seriously though, I have never under this type of thinking. It seems to me that it assumes that workers are just cogs, incapable of doing anything other than what they are.

If companies are planning on reducing the wage compensation of workers in comparison to products, this means either one of two things: either cheaper labor elsewhere (globalization) or making just as much stuff with less workers (productivity increases.) It seems blindingly obvious to me that both these things are benefits, unless your workers are producing at their highest potential already.

In both cases it frees up potential workers to produce other things, at less cost than could have been supported before. That is a recipe for economic growth.

Posted by: Dave Justus | Oct 25, 2006 3:40:58 PM

"frees up potential workers"

Workers of the World Unite! You have nothing to lose but your jobs! And houses and health insurance! But before the foreclosure and premature death:cheap iPods!

Dave Justus does give a fair summation of neo-liberal economics.

Posted by: bob mcmanus | Oct 25, 2006 4:12:50 PM

"productivity increase = benefit"

Who enjoys the fruits of this benefit? It ain't the poor sucker working two jobs with no health insurance for himself or his kids.

How hard are we allowed to squeeze for that last drop of blood?

Posted by: GP | Oct 25, 2006 8:25:28 PM

I've been waiting for the Democrats to make this their position since the run-up in the market began but they've inexplicably failed to do so. The quote above does a nice job of summarizing the fact that the stock market is as accurate a predictor of future profits as there is. However, it doesn't go far enough in exploring the underlying potential causes for the increases which include expectations that a Democratic House and/or Senate will increase the likelihood of:

- Fiscal sanity and balanced budgets over time. This has the potential to strengthen the dollar, depress interest rates, and increase investment in US-based assets
- More progressive taxation with a reduced burden placed on the middle class and increased burden on the rich and filthy-rich
- An expedited exit from Iraq which reduces spending and improves consumer confidence indirectly
- the list goes on and on...

The run up in the market is a function to some degree in the expectation that the Democratic Party will be in a position to restore fiscal, moral, and practical sanity in our Federal government.

Posted by: BWS | Oct 25, 2006 10:51:08 PM

Who enjoys the fruits of this benefit? It ain't the poor sucker working two jobs with no health insurance for himself or his kids.

Well, yes, indirectly. This productivity allows that poor sucker's company to compete in the world market and provide those jobs.

Directly, the poor sucker who took the risk of losing his investment will benefit by higher stock prices.

It seems that your crowd doesn't understand the capitalist system in which we live. Why not just vote Socialist of Communist? Oh, or you can vote Democratic.

Posted by: Fred Jones | Oct 26, 2006 9:09:18 AM

Oh, or you can vote Democratic.

That's what I do. That our system, including parts of it you favor, includes socialistic aspects doesn't bother me at all. No one favors a purely market-based system.

Posted by: Sanpete | Oct 26, 2006 11:53:29 AM

I bet Mr. Jones does.

Of course, we don't have anything like his "free market capitalist" system. Corporations are creatures of the State given special treatment in taxation, government subsidies, reduced liability, etc. Not to forget that the United States is basically a War Economy, with many of our most profitable companies directly involved in activities supported or funded by the State.

So...the question becomes....who does the "socialism" benefit?

Posted by: Brian Miller | Oct 26, 2006 12:02:11 PM

Well, yes, indirectly. This productivity allows that poor sucker's company to compete in the world market and provide those jobs.

In simpler terms, no, the workers don't benefit.

Posted by: Col Bat Guano | Oct 26, 2006 3:10:34 PM

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