Our economic turn from shared sacrifice to Social Darwinism

By Frank Moraes

Yesterday, Paul Krugman wrote, Why Corporations Might Not Mind Moderate Depression. What he's trying to get at in a deductive way is that there might be a level of unemployment that maximizes profits for companies. Under normally circumstances, companies would want a high customer demand. But that requires a lot of employees. And if the company requires a lot of employees, they will probably have to pay their employees more. But if demand is less because unemployment is high, they may be selling less, but this could be offset by the lower wages they pay.

He notes that since 2009, while wages have remained fairly stagnant, company profits have almost doubled. He admits that a lot of factors go into this and that it doesn't show that there is such a depressed economy that maximizes company profits. But still, I don't buy it. In general, direct labor costs for a company are low. For example, for your average GM car, only about 5% of the retail price went to wages for GM employees. Of course, there are a lot more wages: the salesmen and all the people who get paid to make the parts that GM buys. But you get the idea. For any given company, wages aren't that big an issue.

But we'll see. There is no doubt that there may in fact be some level of unemployment that does maximize profits for the corporate industry generally. There is also no doubt that the way the Federal Reserve operates, it pushes for exactly this kind of situation. This is why Ben Bernanke wasn't that concerned when unemployment was at 8% and inflation was at 2%. That's a very pro-business situation.

What bothers me more is that employers don't have that much to gain by keeping employee wages at rock bottom. Investing in new technology and employee training is far more important if the employers want to make a lot of money. But we constantly hear them grumbling about labor costs. (But don't be confused: lack of demand is the biggest complaint of business owners—now and pretty much forever.) So what's with that? I think that's a class thing. I've watched time and again as employers allow great employees to leave rather than trying to entice them to stay.

Employers don't want to ever admit that they are part of the company. They want to think that they are the company. That's what was behind all that screaming about, "I did build that." It was all them: the owners. It wasn't something they did inside a social structure that allowed communities with things like roads. And it sure wasn't something they did with the help of their workforce. (Interestingly, employers claim that employers aren't part of the building process because they were paid. This makes no sense, because the business owner was also paid for building the business. As with most "conservative" thinking, it is not deep.)

I think the biggest thing that is different between 1945-1975 and 1976-present, is that the post-war period made people think they were working together. By the late 70s, we had forgotten that we are all in this together and the era of "Greed Is Good" started. And that's where we are today. I don't know what we are going to do about it, either. If the attacks on 9/11 caused our leaders to think that tax cuts for the rich and welfare cuts for the poor was the way forward, I'm not sure there is any hope.

As always: the very least we can do is vote.

(Cross-posted at Frankly Curious.)