Saturday, 10 September 2011

Keynesian Capitalism

The USA is the bastion of free market or so we are told. The animal spirit of capitalism encourages innovation and improves standard of living of ordinary people. or so we are told. So we cheer when the profits of the big companies go up and S&P 500 goes higher. ( Forget the small business, they do not have money to spare for lobbying to Congress). Will it be surprising then to note that in this era of super growth of corporate profits, the share of wages in GDP is the lowest?
Unfortunately the chart shows that most of the profit growth has come at the expense of wages. But wait, if there is no wage growth, how come people are buying stuff? Sale of ipods and ipads are going through the roof even when food stamp usage is at record number. Where the money is coming from? Well, apart from not paying the mortgage, most of the money is coming from Government transfer payments:
In fact, 22% of every dollar of the US personal consumption is coming from Uncle Sam. So in effect, The government transfer payments are keeping the corporate profits healthy. Capitalism for the mass indeed.

Have you ever wondered, why the Government and the Fed are so keen to keep the asset values ( read stock markets) high? May be the following chart will help in understanding.
 Do we still need more narratives?


  1. There's no doubt that most of the wealth in this country belongs to a small minority of Americans. However, if you were king for a day and mandated that the country's wealth be spread evenly among its citizens, within a decade the distribution of wealth would revert back closely to what you had at the beginning. Why? Because people won't change their habits. Those who spend recklessly will continue to do so and those who save and strive to get ahead will accumulate wealth. There will always be a lopsided distribution of wealth in a capitalistic economy. Come to think of it, socialist and communist countries are no different because the ruling class has all the wealth. It's just the human condition.

  2. It is not my objective to suggest a re-distribution of wealth.That does not work. But if you draw all the blood on the face to make it glow, it does not make the whole body healthy.
    The best model of a capitalist society at the present moment is Norway. I will put up some charts on the Norway model soon.
    Thanks for your insight.