Thursday, May 10, 2012

Good Profits, Bad Economy...

US corporations have one of the best earnings seasons ever with 80% of listed companies beating expectations and profit growth of 6.7%. By Wall Street standard it has been a blockbuster quarter for US companies. The great mystery for those looking at the economy is this high level of profit does correlate with the weak anemic growth of an economy hobbling along with very weak job growth and GDP barely chalking up 2% growth annualized. What is going on?

"Of course, that return to pre-recession level earnings hasn’t translated into job or wage growth for America’s workers. In fact, inflation-adjusted wages fell last year. Big companies are also squeezing more productivity out of their workers, with annual revenue generated per worker increasing by more than $40,000 over the last five years. CEO pay, meanwhile, increased 15 percent last year." - [Link]



"According to a study by researchers at Northeastern University, during the first nine months of the recovery, pretax corporate profits rose by $388 billion while total wages and salaries rose by only $68 billion. Of the total, therefore, corporate profits received 85%.....By contrast, in four previous recoveries since 1980, the share going to corporate profits averaged just 19%. As a result, corporate profits are now at their highest level since World War II." - Time Magazine : Why aren't there more jobs

"The drive to boost published profits has pushed down business investment in both the U.S. and the U.K. This has boosted the relative wealth of owners of capital compared to the rest of the population. Because the rich consume less than the rest, this has had a dampening effect on wider incomes and economic growth" Wall Street Journal


American workers saw large productivity increase without corresponding increase in wages. With higher productivity,  US businesses achieve higher profits. They don't have to hire more workers hence we have the weak employment figures. With the income of workers stagnant, aggregate demand reminds weak and that has hindered the economic recovery.

With most of the wealth going to the rich, there is a dampening effect on consumption as the rich spend only a fraction of their income while middle class and below spend most of their income. 

Without increase demand, businesses are reluctant to invest and expand ,,,,they rather give out profits as dividends or keep a cash hoard,. 

Why are wages stagnant despite increase in productivity? There is a lot of slack in the US labor market with unemployment rate of 8.2% so there is no pressure to increase wages even as profits increase,

What has all this got to do with Singapore?  Remember all the talk by the PAP that productivity has to go up before wages....

 "This year, with the booming economy, we will definitely need more foreign workers so that we can create more jobs in Singapore. A few months ago, I mentioned to the press that we could need more than 100,000 foreign workers more this year. There was a big ooh which you could almost hear. Well, since then, we have recalculated. Maybe, we will get by with a few less, perhaps 80,000 workers. But I said this to highlight the trade-off which we face and which we cannot avoid" - National Day Speech 2010 PM Lee

Typically when our economy gets stronger, the govt lets in more foreign workers. This keeps wages down and companies don't have to increase wages even if productivity has increased. So productivity increase may not result in rising income. When Singapore businesses expand they have access to foreign workers, we see cost pressures building up in other areas such as office rentals, transport, housing etc.   Everything else goes up while wages remain stagnant. This boosts the wealth of "owners of capital", e.g the large businesses that own the office buildings etc and this worsens our income gap.

Most Singaporeans are wage earners. Unless we change the current economic model so that wealth generated is distributed in a more equitable manner, we  will not see an end to the rising discontent and the increased polarization of our society.


29 comments:

Anonymous said...

"Unless we change the current economic model so that wealth generated is distributed in a more equitable manner, we will not see an end to the rising discontent and the increased polarization of our society."
Lucky Tan

Don't forget the current economic model is due to and decided by the political model.

And who decides the political model?

The 60% who voted PAP and enabled PAP to win 93% seats to form a strong government and decide the economic model.

So as a matter of common sense, what needs to be changed first before you talk about changing the economic model?

Anonymous said...

Vote for PAP in Hougang and you vote for more foriegn workers

Anonymous said...

Change it to 60% or more vote for opposition.

But it only happened in Hougang.

But this round on 26 May, also hard to say.

Maybe it it is even 60% for PAP!

Anonymous said...

Without FT, singapore will not be what it is today a vibrant and prospering economy. Companies would relocate elsewhere if cost of business is too high and they cannot find workers to do the job. Who suffer in the end when companies cannot find FT to do the job? It's you and me!

Ask yourself, have most of us become richer or poorer after all these years?

Arent you grateful that our HDB assets are coming close to a million now? Rising HDB prices is okay as long as it continue to appreciate. A BTO flat in clementi may set you back for 700K but after 5 years, it can fetch easily close to a million as long as the open door policy remains.

Singapore will be worse off without FT.

Anonymous said...

"Arent you grateful that our HDB assets are coming close to a million now?"
Anon 10/5/12 15:18

You own more than one property is it?

If not, you must be real daft to say this.

Anonymous said...

"Arent you grateful that our HDB assets are coming close to a million now?"
10/5/12 15:18

He is one of the fat cats who has benefitted most from this government's over-liberal immigration and growth at all cost policies. Karma will come when the housing bubble bursts.

Anonymous said...

Anonymous said...
"Arent you grateful that our HDB assets are coming close to a million now?"
Anon 10/5/12 15:18

Don't you think that gaining from such rise in property prices is short-sighted?

Have you ever thought of your children or your children's children? How will they afford their homes if properties prices continue rising and wages cannot catch up?

Anonymous said...

"Ask yourself, have most of us become richer or poorer after all these years? "
Anonymous
10/5/12 15:18

You obviously do not see the 30,000-foot drop ahead, do you?

I notice there are quite a few like you on Lucky's blog of late. You are quite welcome to visit, but stop leaving your rubbish around.

Anonymous said...

Lucky, do u seriously think the pap will ever change their ultra-capitalist ways ?
Definitely over Lee Kuan Yew's dead body.
Anyway it is good that u continue to put more and more nails into Lee Kuan Yew's coffin. Then he cannot rise from the dead to cause too much trouble to ordinary Singaporeans.

Anonymous said...

We are sure of one thing. This little red dot is constrained by limited land area. A lot of our problems can be attributed to the influx of FT. Escalating property prices, over-crowding and over-stressing of the MRT until breakdown, stagnant wages......... are some of the problems.

The FT policy is a Ponzi scheme that is unlikely to be sustained. Collapse of this scheme will occur when the little red dot runs out of space.

I feared we are nearing collapse unless a co-driver can take-over our sleepy driver to wake him up so that he recognise and stop the Ponzi scheme immediately.

Anonymous said...

http://christopherbalding.com/2012/05/09/the-mess-that-is-singapore-part-i-explaining-the-debt/

Excerpt:

As was noted in the original paper, this implies one of two things: 1) the returns are fictitious and there has been a lot of money lost OR 2) there are enormous unreported holdings controlled by Singaporean public entities. You simply cannot explain $500 billion SGD in surpluses and increased indebtedness without asking where that money has gone. As of right now, there is no record of public Singaporean assets to match what we would expect to find. Show me additional assets that should be there. Temasek and GIC don’t have them. Where is the missing money? If it wasn’t spent, and there is no public record of that, then it should be a financial asset under public Singaporean control

As a last point, if these surpluses and additional borrowing even matched the rate the CPF pays out to Singaporean citizens of 4% would equal approximately $750 billion SGD. This is 50% more than the estimated holdings of Temasek and the GIC. Unless someone can find hundreds of billions of unreported Singaporean public assets, we should assume this money has gone to money heaven.

Next time, I will describe exactly how the Central Provident Fund plays in to all this and why Singaporean should be worried…..very very worried.

-----

Anonymous said...

Reference:
http://christopherbalding.com/2012/05/09/the-mess-that-is-singapore-part-i-explaining-the-debt/

Don't worry lah!
We got Crony Tan looking after our reserves right?

Anonymous said...

Reference:
http://christopherbalding.com/2012/05/09/the-mess-that-is-singapore-part-i-explaining-the-debt/

Vote in more Opposition MPs to ask the questions in parliament?

Engage foreign forensic accountants in a Committee of Inquiry?

Anonymous said...

QUOTE
To those who can hear me I say, "Do not despair."
The misery that is now upon us is but the passing of greed,
the bitterness of men who fear the way of human progress.

The hate of men will pass and dictators die;
and the power they took from the people will return to the people
and so long as men die, liberty will never perish.
UNQUOTE

Source:
"The Great Dictator"
http://www.youtube.com/watch?v=5IvPIWzQcUY

Anonymous said...

Hougang will go to the Workers' Party.

Don't worry about. It would be better if the Hougang residents could send a clear mandate to this government as to what the people think about the government policies as of late. Hougang residents must give the government's its annual report.

Pinky is holding elections earlier than expected as he has realised the longer he holds it up, the more mrts screw ups are going to come his way.

But, the minute the by-election is over, they'll be back to their old ways.

Stay tuned.

Lye Khuen Way said...

It is amazing how some could still laud the "Asset Enhancement " policy without looking ahead!
Sure, if you were born with a silver spoon and have more than one property,
80% of us still and would have lived in a HDB flat, so let us not kid ourselves about downgrading in your golden years.
Of course, if you are a childless couple, PAP would be your ideal party-in-power.
Between Prof Lim and Lucky Tan, my economics understanding had deepen. Thanks for the free lessons.

Anonymous said...

What talking you guys? Riches created by High property prices are spilling down to everyone. Whatever your financial situation is, you own a flat, you make money. Though cost of living is up, it can be mitigated by disciplined living. One can still survive and look forward to better days. Those who fall through the cracks are the minority. They need special help.

Anonymous said...

To anonymous @08:38,

What spilling riches are you talking (writing?) about? The effects of inflation and suppressed wages, both due to high rental? Unless you sell your property, you can never realise the profit. And after you sell it, are you going to pitch a tent along East Coast Park and enjoy the riches spilling down? Mindless comment.

Anonymous said...

To anonymous @08:38,

What spilling riches are you talking (writing?) about? The effects of inflation and suppressed wages, both the direct results of high rentals? Unless you sell your property, you can never realise the profit. And after you sell it, are you going to pitch a tent along East Coast Park and enjoy the riches spilling down? Mindless comment.

Anonymous said...

Since the rental rules have been relaxed, many more have leased out their flats - Obviously in anticipation of surge of FWs and FTs. Due to high prices and tight supply, rental has gone up to. Many have found ways to supplement their income - through rental. It helps those who are struggling and also lubricate the economy. Better than nothing. If you kill this source, what do you think we happen? Granted,costs went up. But up to you to navigate your expenses. Won't die.Worse scenario, go beg MP. MP through a few dollars at your face. Eat bread live another day, beg again and repeat cycle or wash dishes.

Anonymous said...

Correct error..MP throw crumbs at your face...

Anonymous said...

To anonymous above, I guess you're the one at 08:38, replying to my (double) post at 10:05.

Renting out your house can only be possible if you have more than one property. And how many do you think have that luxury?

You're asking us to be a begging nation, begging the MP's for crumbs. Thanks but no thanks, I have my dignity, said dignity not measured by how much I earn. I'd rather earn a comfortable income through my efforts and ability than wait for handouts from the government.

Anonymous said...

Give you one possible scenario. Single divorcee with 2 kids. Now living with sibling and parent. Not rich with some CPF, bought a 4 rm HDB at peak. Low mortgage. Lease out 2 rms. additional income of 1K to 1+k through part time job so can spend time with children. Many scenarios

Anonymous said...

Fundamentally, the entire economy and politics is wrong. No one is radical enough to change it. But change to what? It must make sense.

Anonymous said...

Look, all this back and forth renting and raving is distracting from the real issue. Property prices are sky high and younger Singaporeans are finding it nearly impossible to afford a roof over their heads. You can only rent out your room if you have one.

A four room HDB flat in Punggol sets you back by 500k - Punggol, with zero amenities (unless you consider a glorified "longkang" an amenity). If you're not earning more than $5000, you can't afford that house (based on 20% of your monthly income going to service your monthly loan repayment).

If you have children, you better start building your financial empire through rental returns to leave behind so that they can afford a home.

Anonymous said...

You cannot afford living in Singapore? There is JB and Batam! The policies are carefully crafted to get losers to make way for new citizens who are more productive and have more dignity, to keep the Lees in power eternally.

Ng Eng Hou said...

All this so-called wealth about rising housing prices is bubble economy. All bubbles will burst in the end. The later it bursts, the more will die and the bigger will be the losses when it happens.

Look at how all this can even brought down a mighty economy to its knees - remembered Lehman Crisis 2008 in USA !

This kind of wealth is fictitious wealth. This is not based on general or overall improvement of the way we live, nothing new was created to make our lives better.

If you're ok with your house and still comfortable with it, stick with it. Don't see any point of those so-called upgrading to private condos which will ever have endless supply coming to you as long as you pay. Never mind, if you can't pay, they will still come to you in toy size, indirectly robbing your wealth and fattening the wallets of developers and government.

PAP has screwed us up big time. It doesn't deserve to win in Hougang!

Anonymous said...

Vote in PAP means more influx of foreign workers to steal jobs and depress wages of Singapore workers, even higher medical costs, delay the age you can withdraw your CPF even later, further shrinking of HDB flats sold at even higher prices to support the asset enhancement scheme, higher Ministers' pay, even more crowded MRT trains that inevitably break down more often, higher transport cost, million-dollars COE and expected increase cost of living due ti inflation which the incumbent government does not help much to allevate for average Singaporesns for their past records.

Anonymous said...

//What talking you guys? Riches created by High property prices are spilling down to everyone. Whatever your financial situation is, you own a flat, you make money. Though cost of living is up, it can be mitigated by disciplined living.//

May I ask. Are you a student or a lecturer in theoretical economics.