Robots and Robber Barons – NYTimes.com.
Krugman does not understand how large entities can be making record profits at the same time that individual workers are doing poorly. Monetary easing from the world’s central banks should be stimulating demand and raising wages, but it is not.
He gives two reasons why his prescription of easy money through central bank printing and government spending is not curing the patient— robots and robber barons. Robots are replacing people, while robber barons through their corporate monopolies are able to extract higher profits due to a lack of competition.
In the first case, robots add to productivity, which increases economic growth. Someone creates, manufactures, installs, maintains and uses the robot. Most of the high-value work is done right here in the good old U.S. of A. Then, the robot is producing something, which needs to be sold, shipped and financed by American workers. Just like the cotton gin raised productivity and income for both workers and owners, I have a feeling our humble robot is doing likewise.
In the second case, he does not give an example of a monopoly but does cite a study where two economists say increasing business concentration could be an important factor in decreasing prices for labor. This statement is unpersuasive. Can you think of any industry that has monopoly pricing power?
Think of a company, and you will be able to conjure several competitors. You give me Apple, I respond with Samsung and Google. General Motors contends with Ford and Chrysler just in its home state let alone the Japanese and German competition. Even Time Warner Cable competes with two satellite companies and Verizon FIOS in my neighborhood.
One economic theory explains how large entities can succeed while individuals struggle, the Cantillon effect. An early economist writing during the Enlightenment and a contemporary of Voltaire, Richard Cantillon theorized that easy money helps those closest to it. The effects of increased demand decrease the further one is from the source, in 21st Century America, the Fed.
This theory explains the current economic situation. Easy money from the Fed is feeding the good times enjoyed by the TBTF banks, who receive the money first, and then their rich corporate and private clients. The banks are making record profits, the other corporations are doing just as well, and their leaders, the 1%, are also making out like bandits.
Meanwhile, the middle and working classes are being hammered. While their wages stagnate, central bank cash ensures that there is no price relief through deflation.
Mainstream economists have expended enormous intellectual and academic capital on massive central bank intervention creating economic growth proposed by Keynes over 70 years ago. Hence, just like 18th Century doctors practicing bloodletting, they cannot see that their proposed cure is actually causing the disease.