May 24, 2019

Links on McKinsey’s A new look at the declining labor share of income in the United States


Distribution Theory is false because Profit Theory is false. After 200+ years, economists still have NO idea about the foundational magnitude of their subject matter. This holds for Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT.

McKinsey* identifies as main drivers of the capital share by sector 1998-2002: Supercycles and boom-bust, Rising and faster depreciation, Superstar effects and consolidation, Capital substitution and automation, Globalization, and labor bargaining power.

The factors that explain the development of sectoral profits, though, do NOT explain the drivers of overall macroeconomic profit. They explain only the distribution of overall macroeconomic profit between the sectors.

The axiomatically correct macroeconomic Profit Law is given by Q≡Qm+Qn with Qm≡Yd+(I−Sm)+(G−T)+(X−M). This reduces to Qm≡−Sm+(G−T) which says that the main drivers of increasing macroeconomic Profit Qm have been in the past decades the increased deficit spending of the household sector (-Sm) and the government sector (G−T) which translates into an ever-growing private/public debt.

Distribution Theory and the concept of a wage/profit “share” is abysmal proto-scientific garbage since the founding fathers. See:

► There is NO such thing as a “labor share of income”
► Profit and the decline of workers’ nominal share (II)
► Profit and the decline of labor’s nominal share (I)
► Profit and distribution: a primer
► Profit and macrofoundations
► Rethinking the Profit Law
► Rethinking the Distribution
► Profit, income, and the Humpty Dumpty Fallacy
► Keynes, Lerner, MMT, Trump, etc. and exploding profit
The GDP-death-blow for the economics profession
► For details of the big picture see cross-references Profit

Egmont Kakarot-Handtke

* McKinsey Global Institute


Wikimedia AXEC143d Macroeconomic Profit Law (with increasing complexity) and sectoral balances equation