Over the weekend, there was a great article which encapsulates everything that is wrong with what passes for modern economics.
It's an old story, really. Companies cut workers in a downturn, and squeeze more out of those remaining. And so profitability rises smartly -- only to fall again in the recovery as sales and payrolls rise once more.
This doesn't make a whole lot of sense according to FreeMarketTheoryTM. In a truly free market, workers are paid their marginal product of revenue, ie how much they produce. If they are producing more, then they should be paid more.
Which is why in a truly free market, economic profits are zero. Except, they are not.
Though just a third of companies in the Standard & Poor's 500 have reported quarterly earnings results so far, the picture is impressive. Profits are booming. Eight out of ten companies have beat earnings expectations, according to Thomson Reuters. The average jump in profits is 33 percent.
In a truly free market, there are no barriers to entry, and competition will drive profits to zero (economic profits, there are still accounting profits).
Yet that is not happening either.
What kind of economy is it that doesn't produce for its citizens? Well, it produces for some:
83 percent of all U.S. stocks are in the hands of 1 percent of the people.
I think I will repeat that:83 percent of all U.S. stocks are in the hands of 1 percent of the people.
This is not how the free market is supposed to work. It is not how Adam Smith and Milton Friedman claimed it was supposed to work. When conservatives defend this system, they are defending an aristocratic crony capitalism.
It used to be conservatives claimed that markets were better because they had better outcomes. Now that this is not the case, they still defend it. It is part of a religion, like thinking that chanting tax cuts will solve every problem.