Thought for the day: the paradox of toil exists
from Merijn Knibbe
In a recent paper, Eggertson and Krugman introduced the ‘paradox of toil’: when there is a lot of debt, working harder and smarter can lead to less demand and, therefore, to less production. Does that exist? Yes, it does (the example is not for households as in the paper, but for companies). Read this, from the Washington Post:
“MAXTON, N.C. – Not far from where Federal Reserve Chairman Ben S. Bernanke grew up, a revolution inside a Campbell Soup Co. plant explains why corporations are piling up profits – with little need to hire more people”.
At the moment this happens everywhere in the USA according to some stats in the article: productivity and profits increase as people work harder and smarter and also (see below) for lower wages – but cash is piled up and not reinvested.
David Raithel has, on this blog, already called our attention to comparable developments at the Harley Davidson plant where wages are decreased and productivity is increased. I propose to call such a situation the ‘Raithel-Davidson paradox’. Purple has, on this blog, called attention to the fact that this is a textbook example of a shifting balance of power on the labor market and increasing exploitation in a Marxist sense. That leads to the following question: does less power for labor in the labor market lead to ‘the paradox of toil’?