councilor.org
| Source | Carrol Cox |
| Date | 99/11/20/18:02 |
| From: "Jose G. Perez" Date: Fri, 19 Nov 1999 23:38:10 -0500 The statistician's sneak attack continues! Having corrected what was clearly a bias to overstating inflation in the inflation indexes, and having corrected the effect of this in the GDP figures, the latest set of figures to be corrected are those corresponding to labor productivity. And, sho enough, in the labor productivity figures release for the third quarter, the Labor Department snuck in a revision of the productivity series going back 4 decades to 1959. Generally, it raises the estimated year-to-year increase in productivity by a few tenths of a percent going back to the 1970s; it also confirms that there has been a significant increase in productivity in the second half of the 1990s. The revised figures indicate that productivity growth from 1959-1973 was at an average annual rate of 2.9%. This figure is unchanged. Then it took a dive, and from 1973 to 1995 was 1.4%-1.6%/year, about half the previous rate of 2.9%. But this 1.4-1.6% rate represents a very sharp UPWARD revision of previous estimates of 1%/year. Then beginning in 1995 --and coinciding, among other things, with the rise of the Internet-- productivity zoomed ahead at a 2.6% annual clip, roughly half again as much as the pre-revision 1.9% figure for the same period. What does this tell us: First, that the great social security bankruptcy debate now showing in Washington and selected local congressional races is even MORE of a fraud than had been suspected. As Doug Henning pointed out in a very fine Left Business Observer analysis, the doom-and-gloom scenarios are based on an extraordinarily low rate of growth, of the economy, the population, and labor productivity. It will be interesting to see how the manic depressive actuaries of the social security system handle this curve ball, for if you factor in productivity growing by 1/2 a percent MORE each and every year -- roughly the adjustment that's been made -- then it gets real hard to "bankrupt" the (totally bogus and fictitous, by the way) "trust fund" much before everyone born yesterday dies 100 or 120 years from now. Second, that working people have been getting screwed by the capitalists even more royally than we imagined. One hundred percent or damn close to it of all the productivity gains have gone to the capitalist class. If you look at the distribution of national income, the percent of national income paid out as wages and benefits (after subtracting social security and Medicare taxes) has gone from 64.2% in 1970 to 54.7% in 1998, a decline of almost 10%. In other words, the average weekly paycheck of $500 or so would be about $590 if OUR share of the national income --every last penny of which WE produce by the way-- had stayed the same. And if instead of all the productivity gains going to the capitalists, they had gone to US, our paychecks today would be, roughly, 36% fatter. And that even while letting the capitalist keep as much money in real terms (roughly) as they were making in 1970! Third, this explains the extraordinary rise in the stock market, not just of the past few years, but going back to the early 1980s. Prior to that for 100 years or so, stock returns had averaged about 10% a year. Since then the return has been about 15% a year. And since 1995, the return has been above 20% a year. Where did these extraordinary rates of return come from? FROM OUR PAYCHECKS. What stock in a company represents is a claim on its future net income, i.e., profits. Stock prices rise both because the amount of profit is rising and because the rate at which the amount of profit increases has been tending to rise also.* Fourth, the current boom of the U.S. economy is not the result, or not JUST the result, of a financial "bubble." It is coming from real increases in labor productivity, virtually all of which are being realized by the capitalist class as surplus value and then divvied up among them through the financial markets. (Which is NOT to say, as I've pointed out here before, that there is no "bubble" in the financial markets at present. There clearly is, in "dot-com" stocks in the U.S., and it seems to be spreading to telecoms, especially in Europe.)** José * On the rise of profits, this one caveat: don't trust too much the officially reported profits, as these are essentially profits for income tax purposes and therefore subject to all sorts of accounting manipulations. For example, there are several sectors, such as entertainment, where it is considered de rigeur NEVER to report a big fat profit (among other reasons because it is easier to cheat writers, directors, actors, etc., this way). Thus Turner Broadcasting, for example, went from a company valued at 3 or 5 million dollars in 1975 (I forget exactly) to one worth about 12 billion when it was acquired --was it in 97?-- having reported substantial "losses" for most of its life and only the teeniest weeniest profits for the rest. This, of course, depresses the stock price but doesn't really fool anyone: when Time Warner bought out Turner Broadcasting, it had to pay a very hefty premium (about 50%) over the nominal Wall Street share price, because the owners (Ted Turner and other cable magnates) of closely held TBS knew what it was really making and therefore what it was really worth. Moreover, Time Warner paid with its OWN stock, which was just as undervalued (and for the same reason) as Turner Broadcasting's had been. Within a year or so Time Warner stock went up about 2/3rds, and on this basis Turner would have been more fairly valued as close to a $20 billion company, which implies profits of perhaps $1-$2 bn/year. This is basically an un-bubble, the opposite of the more commented phenomenon of companies whose stock trade for much more than it could conceivably be worth by any rational standard.] ** (For those that don't know what a "bubble" is, the easiest explanation is a description (really, a caricature) of how corporate Japan was set up. Company "A" is worth $1 billion; it has $100 million in real assets, and a total of $900 million in 10% of the stock of 9 other companies (B, C, D, etc.) each also worth $1 billion. Company "B" is worth $1 billion, again, $100 million in real assets and $900 million consisting of 10% of the stock of 9 other billion dollar companies (A, C, D, etc.). You can see where I am going with this. By the time you add it all up in all ten companies, you have $1 billion in real assets, and $9 billion in fictitious capital, which represents the $900 million overvaluation of each company. If all these companies traded back to each other the stock in each other they held, soon we'd be left with ten $100 million companies. And nothing in the REAL economy need be perturbed: each company keeps on getting the profits of their $100 million business. BEFORE each company kept 1/10th of its profits, and sent 9/10ths to the other companies. The only thing that's been eliminated in eliminating the cross-shareholding is writing each other a bunch of checks that essentially cancel out (in our ideal example). (Now, the reason Japan got set up this way was to create, in essence, monopolies, so that you in company "A" did not get your raw materials from someone outside the family but from company "B" because your OWN profits were pooled, so to speak, with those of company "B" and the other members of the trust through cross-shareholding. (In principle, all of this works, to all intents and purposes, like a check-kiting scheme. To make it really work you need to get banks involved (as they were in Japan), and various other things but the essence of it is what I laid out above: "financial" assets which, in essence, have no backing in the real economy. While it remains strictly in one sector, as in my simplistic example, a "bubble" is easy to unwind (at least in theory!) without affecting the real economy. When real and fictitious capital become commingled and inseparable (as happened in the US in the 20s), the economy as a whole is likely to go to hell. That's because the fictitious capital isn't involved in the production process; its value cannot be embodied in commodities placed on the market and thus preserved; and all of a sudden there isn't enough surplus value to go around to all the owners of capital. This is one thing that makes the US dot-com bubble fairly benign so far. No one really believes that, say, one thousand dollars or amazon-dot-com is going to get the return this year that rentiers demand of one thousand dollars worth of IBM or Wal Mart. IBM stock is a real claim on the real profits of a real money-making business. Amazon-dot-com shares are lottery tickets. As a financial speculator, the trick is to convert your fictitious capital into real capital, and that's where banks and financial institutions are key -- for example, lending you a million dollars with a million dollar's worth of amazon-dot-com as security. No SANE bank in the U.S. will do that right now on a huge scale, which is why the dot-com bubble is not yet that malignant, and probably could be unwound without great damage, as the "bio-tech" bubble of the early 90s, and the electronic bubble of the early 60s were. (U.S. laws from the 1930s prevented "retail" banks from being essentially holding companies of "industrial" companies and "retail" banks, brokerage and investment houses, insurance companies and "industrial" companies had to be different entities under these laws precisely as a way to eliminate the incentives to creation of "fictitious" capital. I'm sure everyone will be overjoyed to learn these kinds of restrictions have just been gutted by Congress). |
Copyright (c) 1998, Joongpil Cho