The New Economy

January 16, 2018

You’ve probably read or heard a lot about economic and income inequality recently.  The fact is it is a big problem and if it is not adequately addressed, eventually it will lead to a weakening of consumer demand and loss of sales for businesses.  This is because as income stagnates for the middle class and the chasm between the very affluent and everyone else widens, in order to maintain consumption levels and keep up with expenses, people will have to borrow more and eventually, they will hit debt limits and will have to sharply curtail their spending.  That means sales will decline and the economy may go into recession.  As FDR’s Chairman of the Fed, self-made millionaire Marriner Eccles wrote:

 

“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth – not of existing wealth, but of wealth as it is currently produced – to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

 

It seems like something similar happened in the run up to 2008/09 and it may be happening again.  In any event, as they say, it is what it is. 

 

For whatever reason, there is a lack of wage inflation, or rise in wages for people who sell their labor in the market.  Over the last 30 years or so labor’s share of the income pie has deceased and labor is at the point where it cannot command large income increases.  The losers in the new economy are thus people who sell their labor for a living, especially people who sell unskilled labor for a living.  Those who have skills to sell with their labor come out better, and the more skills or the harder it is to obtain those skills, then the scarcer the specialized labor and the more income the worker can command.  Not every working person loses, but the majority of people do not have a lot of skills to offer and those people probably find they have a hard time prospering in this economy.  It didn’t used to be that way.  Back when labor’s share of income was higher, even unskilled workers, think manufacturing and blue collar workers, did pretty well relative to today. 

 

Now for the winners in this economy.  The winners are the owners of capital - those who own the assets, physical and intangible.  People who own businesses or factories, stores and inventory they can sell or have others sell, can do well.  Owners of real property can also do well by collecting rents from in demand locations.  But the biggest winners, the elite of the elite in this society, aside from Wall Street and Hedge Fund types, are the owners of intangible assets or intellectual property.  A well written book, a film, a brand with tons of goodwill, a patent on a product in demand, software (think Google) or just some specialized knowledge that can be sold through consulting services, seems to command the greatest value in today’s economy.  Moreover, in this ever increasing globalized world, most trade pacts have special sections dealing with intellectual property and U.S. trade negotiators have prioritized elevated treatment of U.S. intellectual property in these trade pacts over physical products, thus benefiting the owners of intangible assets even more.  There are also several international treaties dealing with protection of intellectual property.  The upshot of this is that there is a fairly stable and reliable global market for intellectual property, most of which still originates from the U.S.  Also, intellectual property is easily distributed and licensed throughout the world.  In this digital world, hardly anything needs to be shipped, just downloaded or streamed.  Physical products, on the other hand, have a more expensive and complicated shipping process when being sold internationally.  It’s just not that easy to sell one’s physical products abroad.  The owners of intangible assets thus reap the rewards of globalization more than any other group in our economy. 

 

The conclusion is obvious, it’s good to be an owner of intellectual property, especially in this economy.  If you are lucky enough to own intellectual property or are about to create an intangible asset and seek to exploit it, you better make sure you have cleared it so it doesn’t infringe on anyone else’s rights, and you should make sure you are properly protecting it by registering it or availing yourself of appropriate law to be able to enforce your own rights when the time comes.  If you have the need, we’re here to help.

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