Apologies for scaring everyone with that little photograph. But it is necessary, as we occasionally do, to examine the views of the country's leading tax expert once again. Yes, it's Richard Murphy time:
It’s hard to see how someone can set out the case that markets have totally failed and yet believe they can still deliver, but he does.
And he is wrong. His description of what is wrong is fair. His suggestion that this can continue is absurd. This is a system on the brink of falling over. If he can’t see that I strongly suggest you do not follow his advice. I do suggest that you think about what will happen when he has to realise how mistaken he is, because the scenario of falling labour returns and capital sitting idle doing nothing cannot persist. Change has to happen.
And right now only the state can break the log jam.
He's making the mistake that Adam Smith warned us against when he talked of consumption being the only and sole purpose of production. The contention that Murphy is making there is that neither labour nor capital (and it is emphasised in the piece he links to) have any pricing power at present. Therefore profits aren't particularly going anywhere and nor are wages. This isn't actually a failure of markets.The absence of pricing power among producers (and both labour and capital are indeed, in this case, to be considered as the producers) is actually one of those things that we assume when we construct our models of how free markets should work.
And so who benefits from this? Well, the only other people around are us chickens out in that marketplace, the consumers. And if labour and capital, the producers, aren't benefitting all that much from the current structure then it must be us as those consumers that are getting all the benefit of the onward march of technology. That is, the consumer surplus is increasing while what we must pay is not. And please do note that it must be us the consumers benefitting. There just ain't nobody else out there.
As Smith pointed out, this is not a failure of markets. This is actually what we want, what we desire. That consumption being more important than the production. And yes, that lack of pricing power among the producers, that very point we make in our models about free markets, is exactly what delivers to us this desired goal.
Perhaps Murphy would find tax an easier subject than economics?