Relentlessly Progressive Political Economy

Travis Fast

Much attention has been recently paid to the absurd levels of profit growth in the Oil Having Provinces (OHPs *tm) compared with wage growth. In what follows I will present a couple of the comparative macro-economic charts on this topic.

As the first graph clearly demonstrates the dizzying heights profits, as a percent of labour income, have reached in the OHPs. However, this trend, although not as perverse, is persistent for the country in the aggregate. At the provincial level, corporate profits in New Brunswick, Québec, Prince Edward Island and Nova Scotia performed well under the national average and Ontario, Manitoba and British Columbia performed just under the national average. Note that the national average is by construction a weighted average.

From this it is often concluded that what we are witnessing is the perverse effects of a resource inspired boom in oil resource profits. And while this is undoubtedly true, such an analysis misses a couple of important points. First, as already mentioned the rise in the ratio of corporate profits to labour income has been the general trend of the last eighteen or so years.

Second, from a historical perspective these general levels are not without precedent as the second graph above shows. Indeed, a similar (profits to labour income) ratio was achieved back in 1974. What is novel is that the trend and level has, if averaged, been relatively stable over the past eight years whereas in 74 it was quite novel and short lived. Moreover, the correlation with the price of oil is rather weak (see graph below). In 1974 the inflation adjusted average cost of oil was $39.77. In 1980, the price of oil peaked at $99.50. And here is the kicker, in inflation adjusted dollars the price of oil over the last 7 years was $42.52 ($64.92 in 1997).

So clearly there is something more than the price or quantity of oil at work here. That is even if one concedes there has been a resource boom driven by the price of oil this does not explain why the revenue earned is divided as it is between employees, shareholders and government. That is a political question as is the national ratio of profits to total labour income. The oil boom only exaggerates the consequences of an existing economic structure.

Travis Fast

When I originally wrote this post I predicted that the debate on income inequality would switch to consumption (see the end of that post). As it turns out those Little Ideological Beavers (LIBs *tm) over at Chicago were already constructing the damn. See this paper. And the debate is now taking its predictable turn with even moderate lefties suckering for the line. See this blog post over at economists view for a rundown.

I do so tire of this debate. Neoliberals lost, it was predictable at the time; the left was right; the right and right moderates were wrong: now go back to defending inequality as an economic good in and of itself or if you are Clintonite/Blarite liberal prattle on about individual responsibility.

You simply can’t argue that the path of relative price differentials between luxury and mundane, cheap and quasi perishable consumer goods makes up for income inequality. First, income and consumption inequality are two separate issues. Second, if I have to buy the same good twice in a year because it is of dubious quality then my actual price is double. Third there are these uncomfortable facts: Fourth, even if we disregard the latter three points it seems absurd to argue that cheap-shit bought on credit somehow vindicates the neoliberal policy paradigm especially when we are in the middle of a consumer credit crisis.

But crisis or no crisis in the credit markets “Cheap Shit Bought on Credit” was not the political slogan of neoliberals although it is perhaps a fitting epitaph for the policy paradigm.