From the TUC

Paul Krugman on wages and profits – the need to go one step further

14 Dec 2012, by Guest in Economics

What started out as a debate between macroeocnomic bloggers on the imapct of technology (and specifically robots) has taken a very interesting turn.

Paul Krugman this week blogged that:

So the story has totally shifted; if you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.

I couldn’t agree more.

Earlier this week I blogged about an important new report by Howard Reed & Jacob Mohun Himmelweit for the TUC on the wage and profit shares over the last 30 years in the UK.

As I wrote then:

the fall in the wage share is not being driven by a generalised rise in the profit rate (or fall in the wage share) across all industries but by the relative growth of sectors with a higher profit share and a relative decline of lower profit share sectors.


the finance sector’s operating surplus was negligible throughout the 1940s, the 1950s, the 1960s and the 1970s. It began to rise in the 1980s and reached almost 5% of GDP on the eve of the crisis. Over this period a rising profits in the financial sector explain the entire increase in the UK profit share.

I think we can go one step further than Paul Krugman, it’s not only crucial to look at profits and who owns the capital but equally crucial to look at exactly where those profits are being made.


3 Responses to Paul Krugman on wages and profits – the need to go one step further

  1. Sandra Dickson
    Dec 14th 2012, 1:14 pm

    Profits are currently only made in the world of financial derivatives. QE1 – 3 as well as QE4’s printed money ends up and remains worthless paper in the financial market.
    Inherently there is no problem with that. Ofcourse if it is true that the financial markets existed in isolation from the world economy. The truth is that financial markets are making up for the lack of resources and productivity in the world. Money is no longer invested in real tangible causes that create wealth for a broader base of people. Instead money is locked up in destructive bubbles “to make money on money” only.
    Sandra Dickson, South Africa.

  2. Jackart
    Dec 14th 2012, 1:43 pm

    Profits as a share of the economy was at rock bottom 30 years ago (late 70’s 80’s). This is cherry-picking data to suit your prior belief that profits are too high. Of course Krugman knows this, which is why he doesn’t say “the last 30 years” This is, to put it another way, lying.

    Anyone think the UK in the late 70’s was a happy economy?

    No. Me neither. Why not? You lot in the TUC.

  3. paulc156
    Dec 17th 2012, 11:06 am

    What’s a happy economy? One where capitalists are happy and everyone else is in rehab?