Profits Without Production

By PAUL KRUGMAN, June 20, 2013

One lesson from recent economic troubles has been the usefulness of history. Just as the crisis was unfolding, the Harvard economists Carmen Reinhart and Kenneth Rogoff — who unfortunately became famous for their worst work — published a brilliant book with the sarcastic title “This Time Is Different.” Their point, of course, was that there is a strong family resemblance among crises. Indeed, historical parallels — not just to the 1930s, but to Japan in the 1990s, Britain in the 1920s, and more — have been vital guides to the present.

Yet economies do change over time, and sometimes in fundamental ways. So what’s really different about America in the 21st century?

The most significant answer, I’d suggest, is the growing importance of monopoly rents: profits that don’t represent returns on investment, but instead reflect the value of market dominance. Sometimes that dominance seems deserved, sometimes not; but, either way, the growing importance of rents is producing a new disconnect between profits and production and may be a factor prolonging the slump.

To see what I’m talking about, consider the differences between the iconic companies of two different eras: General Motors in the 1950s and 1960s, and Apple today.

Obviously, G.M. in its heyday had a lot of market power. Nonetheless, the company’s value came largely from its productive capacity: it owned hundreds of factories and employed around 1 percent of the total nonfarm work force.

Apple, by contrast, seems barely tethered to the material world. Depending on the vagaries of its stock price, it’s either the highest-valued or the second-highest-valued company in America, but it employs less than 0.05 percent of our workers. To some extent, that’s because it has outsourced almost all its production overseas. But the truth is that the Chinese aren’t making that much money from Apple sales either. To a large extent, the price you pay for an iWhatever is disconnected from the cost of producing the gadget. Apple simply charges what the traffic will bear, and given the strength of its market position, the traffic will bear a lot.

Again, I’m not making a moral judgment here. You can argue that Apple earned its special position — although I’m not sure how many would make a similar claim for Microsoft, which made huge profits for many years, let alone for the financial industry, which is also marked by a lot of what look like monopoly rents, and these days accounts for roughly 30 percent of total corporate profits. Anyway, whether corporations deserve their privileged status or not, the economy is affected, and not in a good way, when profits increasingly reflect market power rather than production.

Here’s an example. As many economists have lately been pointing out, these days the old story about rising inequality, in which it was driven by a growing premium on skill, has lost whatever relevance it may have had. Since around 2000, the big story has, instead, been one of a sharp shift in the distribution of income away from wages in general, and toward profits. But here’s the puzzle: Since profits are high while borrowing costs are low, why aren’t we seeing a boom in business investment? And, no, investment isn’t depressed because President Obama has hurt the feelings of business leaders or because they’re terrified by the prospect of universal health insurance.

Well, there’s no puzzle here if rising profits reflect rents, not returns on investment. A monopolist can, after all, be highly profitable yet see no good reason to expand its productive capacity. And Apple again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.

Or to put it differently, rising monopoly rents can and arguably have had the effect of simultaneously depressing both wages and the perceived return on investment.

You might suspect that this can’t be good for the broader economy, and you’d be right. If household income and hence household spending is held down because labor gets an ever-smaller share of national income, while corporations, despite soaring profits, have little incentive to invest, you have a recipe for persistently depressed demand. I don’t think this is the only reason our recovery has been so weak — weak recoveries are normal after financial crises — but it’s probably a contributory factor.

Just to be clear, nothing I’ve said here makes the lessons of history irrelevant. In particular, the widening disconnect between profits and production does nothing to weaken the case for expansionary monetary and fiscal policy as long as the economy stays depressed. But the economy is changing, and in future columns I’ll try to say something about what that means for policy.

Biblical economics

 Prosperity Christianity, or what some call “health and wealth” religion…is the adoption of the logic of free enterprise and branding as a way of understanding, experiencing, and proselytizing Christian religious values.…. As a set of religious teachings and training, the theology is centered on the notion that God provides material wealth—prosperity—for those individuals he favors… the teaching that believers have a right to the blessings of health and wealth and that they can obtain these blessings through positive confessions of faith and the ‘sowing of seeds’ through the faithful payments of tithes and offerings… How Christianity Became a Lucrative Brand By Sarah Banet-Weiser, New York Press, posted on, December 17, 2012

Biblical Capitalism – The Religious Right’s War on Progressive Economic Policy by Rachel Tabachnick, Talk to Action, Feb 01, 2011… “Biblical Capitalism” or the belief that unregulated capitalism is biblically mandated. The Religious Right is well known for its regressive social activism, but less publicized is the role it has played in the war against progressive economic policy, labor unions, the regulatory structure and social safety net. The sacralizing of laissez-faire capitalism predates the Tea Party movement and has been a major theme of fundamentalist textbooks for more than three decades…

Capitalism and Christianity by Peter Montgomery,, July 19, 2013

God Favors Supply-Side Economics, Post by Gordon Haber, ReligionDispatches,org, August 2, 2013

Jesus Hates Taxes: Biblical Capitalism Created Fertile Anti-Union Soil By Peter Montgomery, Religion Dispatches, March 14, 2011 – While the assault on unions by Wisconsin Gov. Scott Walker and other GOP governors and legislators seems driven mostly by the billionaire Koch brothers and corporate-funded groups, religious right leaders and activists have spent decades creating fertile soil for anti-union campaigns through the promotion of “biblical capitalism,” which researcher Rachel Tabachnick describes as “the belief that unregulated capitalism is biblically mandated.”
Pseudo-historian David Barton, a frequent guest of broadcaster Glenn Beck, is using his newly enlarged audience to promote American exceptionalism (America was created by its divinely-inspired founders as a country of, by, and for Christians) and Tea Party-on-steroids economics (Jesus and the Bible oppose progressive taxes, capital gains taxes, estate taxes, and minimum wage laws). The Religious Right has a long practice of claiming divine mandate for its policy agenda as it makes for an exceptionally potent political argument: if God supports radically limited government, then progressive policies are not only wrong but evil, and supporters of liberal policies are not only political opponents but enemies of God.
Two days after the November 2010 elections, Barton, Newt Gingrich, and Jim Garlow (who runs Gingrich’s Renewing American Leadership group), held a conference call with pastors to celebrate conservative political gains. On the call, Garlow and Barton asserted a biblical underpinning for far-right economic policies: Taxation and deficit spending, they said, amount to theft, a violation of the Ten Commandments. The estate tax, Barton said, is “absolutely condemned” by the Bible as the “most immoral” of taxes. Jesus, he said, had “teachings” condemning the capital gains tax and minimum wage.
Barton also enlists Jesus in the war against unions and collective bargaining…and went on to explain why the Bible is anti-union…
It’s clear that the attempt to once again “break the spine of labor” is meant to cripple any opposition to the vision of a country in which corporations are given free rein to maximize profits without concern for workers’ safety, community well-being, and environmental protection. The seeds of that vision were first planted by Christian Reconstructionists and The Family and today’s conservative Christian leaders are only too eager to take advantage of the fruits of those labors to make the case that Jesus opposes efforts to ensure a living wage to workers, and that workers should accept as good slaves whatever treatment their employers dish out.

The Debt Ceiling Crisis and Biblical Economics by Julie Ingersoll,, July 14, 2011 – An interesting week for biblical economics: the longstanding voice in the wilderness Ron Paul…In many ways prompted by tea party ideological intransigence, Paul has brought what were once considered extreme, fringe, even “crackpot” economic views to bear on the American economy and potentially the global economic system…his ties to the Reconstructionists…The new GOP coalition, built on tea party support, is breaking down over the debt limit crisis…now tea partiers like Michele Bachmann are saying they won’t vote to raise the limit at all and are claiming that the administration is exaggerating the impact a default will have. Moreover, they’re so sure about the tea party members staying in line on a vote, they’re going after Republicans who want to cut a deal.…
rooted in what I described at a “theocratic reading of the Bible…
It’s much harder to make something happen (eliminating the Federal Reserve) than it is to keep something from happening (raising the debt limit)…
for proponents of biblical economics, there’s a much deeper motive. As I explained in the November 2010 piece on the Fed:
North’s overarching schema is that there is an impending social collapse which will provide the opportunity for biblically-based Christians to exercise dominion by replacing existing humanistic institutions with biblical ones…
“people will at last decide that they have had enough moral and legal compromise. They will at last decide to adopt a simple system of honest money, along with competitive free market principles throughout the economy.”…
For North, default of the U.S. economy is inevitable; he argues that it has already begun. We know who he thinks will pick up the pieces.

Does God Want You To Be Rich?

Let There Be Markets: The Evangelical Roots of Economics By Gordon Bigelow, Harper’s Magazine, May 2005

Why Taxing the Rich is the Godly Thing by Peter Laarman, Religion, July 28, 2010