Baumol is so last-century

Yesterday's discussion about the "Baumol effect" says as much about the times William Baumol was working in as it says about economics.

In the 1960's it was taken for granted that as labour productivity improved, wages would increase. Economists had a hundred years of data proving that to be the case. Baumol concerned himself with what was essentially a side-show; why did wages increase in occupations that did not enjoy productivity improvements?

Developments in the North American and some other Western economies since the 1970's have vaporized the underlying assumptions that Baumol and every economist of his generation took for granted. The goods-producing sectors of the economy have seen wages go down even as productivity continues to go up.

Instead of some of the surplus accruing to the workers who produce the goods, it now goes more than ever to the owners of the means of production. This class of patriots owe their allegiance in the first place to every American millionaire's number one most cherished value; the right to accumulate capital.

To that end the rich and their lobbyists and their politicians and their press have prevailed in molding a tax regimen that reflects their interests and values.

That's why we have Tim Cook in the news lecturing the US senate about how Apple's offshore cash hoard will stay offshore unless and until American taxes are cut to the level the company enjoys in those offshore tax havens.

That such a spectacle is even possible speaks volumes about how dysfunctional the American democracy has become.