Krugman: Profits Without Production

[ProSense]

Profits Without Production

By PAUL KRUGMAN

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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...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...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.

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http://www.nytimes.com/2013/06/21/opinion/krugman-profits-without-production.html

[ProSense]

1. Kick! n/t

[Socialistlemur]

2. Mr krugman forgets market power can reflect innovation and quality

I buy apple products because they deliver innovation and quality. Nobody forces me to do it. I can use alternatives but I don't. I think Mr Krugman is a bit old and doesn't own a tablet or a smart phone, or doesn't know how to squeeze utility out of what he has. This means a lot of his commentary is a teensy bit outdated.

The advantage Apple has is similar to the advantage of the New York Yankees, or Mc Donald's. I don't like the Yankees , I don't eat at greasy joints. But they do have fine business models and more power to them.

[lumberjack_jeff]

3. You're not buying apple products. You're tithing to the apple church.

McDonalds sells on value, so it is a bad analogy.

[panader0]

4. I'm certainly no economist, I'm a bricklayer, but this "profit without production" thing

makes perfect sense to me. So many in this day and age make a living with nothing to show for it, no product, at the end of each day.
They shuffle papers, go on-line, sit in cubicles ,shuffle more papers.
I remember a country of products, of workers, and most of that is gone. I take a measure of satisfaction being able to stand back at the end of each day and see my product. It does not exist in cyberspace, but in physical reality.
Maybe it's me, I must be quite old fashioned.