Hearing folks debate wages vs profits this morning, it is reiterated to me that it’s not necessarily a “versus,” it is sometimes an “and.” It is very possible, if not optimal, to have solid wages AND profits.
The chart above highlights strong corporate profit margins. That is a good thing. It is not unreasonable to evaluate both profits and wages in the same analysis, but it is possible for both to thrive. Regardless, it is surely important that US companies continue to improve profits in order to maintain the wealth of its citizens.
The problem of weak employment in the US surely needs to be addressed. The unwillingness of many folks to conclude that it is perhaps more structural than usual relative to cyclical unemployment has prevented policy makers from implementing the proper tools for the situation.
That acknowledgment would imply that monetary policy should not be the main tool utilized, if any, by centralized policy makers, and that fiscal policy would be more appropriate. My tax proposal, which also serves as a short-term fiscal stimulus by fortunate chance, also provides more desperately needed after-tax cash flow to citizens through more efficient and broad-based means than purchasing assets through Fed QE.
The chart above acknowledges that wages have been going down as a relative cost in our country’s economy. Lower input costs are a good thing. Absolute wages are the key issue which should be the focus. If we have weak GDP growth, then it is difficult to have wage growth without it increasing as an input cost. Therefore, it is important that folks seriously consider ways in which we can utilize our human capital more efficiently to grow our current economy.
The US economy is poised to enjoy continued prosperity in the form of increased profits and wages, as long as some structural issues are addressed. I am hopeful that citizens consider a strong economy an important issue and begin to increase it as a priority on the list of civic issues that need to be addressed now.