Provided by Business Insider
Last week, we pointed out one of the defining characteristics of our imbalanced economy:
- Corporate profit margins just hit a record-high
- Wages just hit a record-low
The juxtaposition of these two facts perfectly illustrates the fundamental problem with the U.S. economy.
What's the fundamental problem? The fundamental problem is that businesses are doing great, as exemplified by those record-high profit margins. But this corporate-and-owner prosperity is not flowing through to average Americans, as exemplified by the record-low wages.
In any event, some people persist in viewing today's record-high profit margins as a great thing.
They will perhaps be interested to know that Adam Smith, the progenitor and demi-god of free markets, actually thought precisely the opposite.Check out this Smith quote from "Wealth of Nations," which was sent over by writer Moe Tkacik (follow her here):
"But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin."
The rate of profit is the highest in countries that are going to hell in a handbasket.
Today's record-high profit margins won't stay record-high forever. They'll correct themselves eventually, either because the US economy will just completely collapse...or, because, finally, corporations will realize that great companies do more than drop every penny possible to the bottom line.
Specifically, great companies create three kinds of value:
- Value for customers
- Value for employees
- Value for shareholders
Our recent corporate religion, in which we have come to believe that the sole purpose of companies is to create value for shareholders, is not just contributing to the shocking inequality that has developed in our country. It has become so pervasive (and misguided) that it could destroy us in the end.
- Investment & Company Information