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Economics and Ethics in a Pandemic

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  • Economics and Ethics in a Pandemic

    Dr. Joe raised this issue on another thread discussing the availibility of masks for use in a pandemic:

    "...Even if stockpiling is practical, we have to consider the ethical practices when the time comes. At the very least, most people would have to consider
    bartering to find the most useful mix of supplies.
    C R"

    What are the economic applications employed in a pandemic?

    Where are we now as a society?

    The chart below provides a clue:

    Profits are taking an increasing share of national income, and wage compensation is shrinking

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    from the St. Louis Federal Reserve

  • #2
    Re: More on the Wage/Corporate Profit Differential

    NY Times:

    August 28, 2006

    <NYT_HEADLINE type=" " version="1.0">Real Wages Fail to Match a Rise in Productivity </NYT_HEADLINE>

    </NYT_BYLINE><NYT_TEXT>With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.
    That situation is adding to fears among Republicans that the economy will hurt vulnerable incumbents in this year?s midterm elections even though overall growth has been healthy for much of the last five years.
    The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity ? the amount that an average worker produces in an hour and the basic wellspring of a nation?s living standards ? has risen steadily over the same period.
    As a result, wages and salaries now make up the lowest share of the nation?s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960?s. UBS, the investment bank, recently described the current period as ?the golden era of profitability.?
    Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers? benefits has also failed to keep pace with inflation, according to government data.
    At the very top of the income spectrum, many workers have continued to receive raises that outpace inflation, and the gains have been large enough to keep average income and consumer spending rising.
    In a speech on Friday, Ben S. Bernanke, the Federal Reserve chairman, did not specifically discuss wages, but he warned that the unequal distribution of the economy?s spoils could derail the trade liberalization of recent decades. Because recent economic changes ?threaten the livelihoods of some workers and the profits of some firms,? Mr. Bernanke said, policy makers must try ?to ensure that the benefits of global economic integration are sufficiently widely shared.?
    Political analysts are divided over how much the wage trends will help Democrats this fall in their effort to take control of the House and, in a bigger stretch, the Senate. Some see parallels to watershed political years like 1980, 1992 and 1994, when wage growth fell behind inflation, party alignments shifted and dozens of incumbents were thrown out of office.
    ?It?s a dangerous time for any party to have control of the federal government ? the presidency, the Senate and the House,? said Charles Cook, who publishes a nonpartisan political newsletter. ?It all feeds into ?it?s a time for a change? sentiment. It?s a highly combustible mixture.?
    But others say that war in Iraq and terrorism, not the economy, will dominate the campaign and that Democrats have yet to offer an economic vision that appeals to voters.
    ?National economic policies are more clearly in focus in presidential campaigns,? said Richard T. Curtin, director of the University of Michigan?s consumer surveys. ?When you?re electing your local House members, you don?t debate that on those issues as much.?
    Moreover, polls show that Americans are less dissatisfied with the economy than they were in the early 1980?s or early 90?s. Rising house and stock values have lifted the net worth of many families over the last few years, and interest rates remain fairly low.
    But polls show that Americans disapprove of President Bush?s handling of the economy by wide margins and that anxiety about the future is growing. Earlier this month, the University of Michigan reported that consumer confidence had fallen sharply in recent months, with people?s expectations for the future now as downbeat as they were in 1992 and 1993, when the job market had not yet recovered from a recession.
    ?Some people who aren?t partisans say, ?Yes, the economy?s pretty good, so why are people so agitated and anxious?? ? said Frank Luntz, a Republican campaign consultant. ?The answer is they don?t feel it in their weekly paychecks.?
    But Mr. Luntz predicted that the economic mood would not do significant damage to Republicans this fall because voters blamed corporate America, not the government, for their problems.
    Economists offer various reasons for the stagnation of wages. Although the economy continues to add jobs, global trade, immigration, layoffs and technology ? as well as the insecurity caused by them ? appear to have eroded workers? bargaining power.
    Trade unions are much weaker than they once were, while the buying power of the minimum wage is at a 50-year low. And health care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages.
    Together, these forces have caused a growing share of the economy to go to companies instead of workers? paychecks. In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132 billion.
    Total employee compensation ? wages plus benefits ? has fared a little better. Its share was briefly lower than its current level of 56.1 percent in the mid-1990?s and otherwise has not been so low since 1966.
    Over the last year, the value of employee benefits has risen only 3.4 percent, while inflation has exceeded 4 percent, according to the Labor Department.
    In Europe and Japan, the profit share of economic output is also at or near record levels, noted Larry Hatheway, chief economist for UBS Investment Bank, who said that this highlighted the pressures of globalization on wages. Many Americans, be they apparel workers or software programmers, are facing more comptition from China and India.
    In another recent report on the boom in profits, economists at Goldman Sachs wrote, ?The most important contributor to higher profit margins over the past five years has been a decline in labor?s share of national income.? Low interest rates and the moderate cost of capital goods, like computers, have also played a role, though economists note that an economic slowdown could hurt profits in coming months.
    For most of the last century, wages and productivity ? the key measure of the economy?s efficiency ? have risen together, increasing rapidly through the 1950?s and 60?s and far more slowly in the 1970?s and 80?s.
    But in recent years, the productivity gains have continued while the pay increases have not kept up. Worker productivity rose 16.6 percent from 2000 to 2005, while total compensation for the median worker rose 7.2 percent, according to Labor Department statistics analyzed by the Economic Policy Institute, a liberal research group. Benefits accounted for most of the increase.
    ?If I had to sum it up,? said Jared Bernstein, a senior economist at the institute, ?it comes down to bargaining power and the lack of ability of many in the work force to claim their fair share of growth.?
    Nominal wages have accelerated in the last year, but the spike in oil costs has eaten up the gains. Now the job market appears to be weakening, after a protracted series of interest-rate increases by the Federal Reserve.
    Unless these trends reverse, the current expansion may lack even an extended period of modest wage growth like one that occurred in the mid-1980?s.
    The most recent recession ended in late 2001. Hourly wages continued to rise in 2002 and peaked in early 2003, largely on the lingering strength of the 1990?s boom.
    Average family income, adjusted for inflation, has continued to advance at a good clip, a fact Mr. Bush has cited when speaking about the economy. But these gains are a result mainly of increases at the top of the income spectrum that pull up the overall numbers. Even for workers at the 90th percentile of earners ? making about $80,000 a year ? inflation has outpaced their pay increases over the last three years, according to the Labor Department.
    ?There are two economies out there,? Mr. Cook, the political analyst, said. ?One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings.
    ?And then there?s the working stiffs,?? he added, ?who just don?t feel like they?re getting ahead despite the fact that they?re working very hard. And there are a lot more people in that group than the other group.?
    In 2004, the top 1 percent of earners ? a group that includes many chief executives ? received 11.2 percent of all wage income, up from 8.7 percent a decade earlier and less than 6 percent three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data.
    With the midterm campaign expected to heat up after Labor Day, Democrats are saying that they will help workers by making health care more affordable and lifting the minimum wage. Democrats have criticized Republicans for passing tax cuts mainly benefiting high-income families at a time when most families are failing to keep up.
    Republicans counter that the tax cuts passed during Mr. Bush?s first term helped lifted the economy out of recession. Unless the cuts are extended, a move many Democrats oppose, the economy will suffer, and so will wages, Republicans say.
    But in a sign that Republicans may be growing concerned about the public?s mood, the new Treasury secretary, Henry M. Paulson Jr., adopted a somewhat different tone from Mr. Bush in his first major speech, delivered early this month.
    ?Many aren?t seeing significant increases in their take-home pay,? Mr. Paulson said. ?Their increases in wages are being eaten up by high energy prices and rising health care costs, among others.?
    At the same time, he said that the Bush administration was not responsible for the situation, pointing out that inequality had been increasing for many years. ?It is neither fair nor useful,? Mr. Paulson said, ?to blame any political party.?



    • #3
      Re: Economics and Ethics in a Pandemic

      So the question is:

      How do we maximize altruistic behavior in a time of crisis when this is a paradigm shift from typical behavior?

      What duty to shareholders does a corporate board have under these circumstances?



      • #4
        Re: Economics and Ethics in a Pandemic

        I'm not sure of the question- is it :how can we here at FT hope to influence altruistic corporate behavior?

        I'm not sure. (great answer, huh?)

        Looking at recent disasters-there seems to be several corporate entitiies that do react in an altruistic light. The much maligned WalMart even plans and prestocks for them, ie hurricanes and earthquakes; trucking essentials like water and canned food to an area and then handing them out at distribution points-not just selling them in their stores.

        There must be many more examples. I think it comes down to the reactions of the corporate decision makers, their ethics and beliefs.

        Companies who believe in practicing behaviors of "good citizens" may be the ones to plan for disaster and then contribute the most; and in the end benefit the most. Thats my initial theory, at least. There will be the usual supply demand issues- but if the choice comes down between two suppliers and all other factors are equal, I'm far more likely to spend my money at one I percieve as helpful and benevolent, and a good corporate citizen.

        I wonder if any research has been done on public reaction to this type of corporate behavior? perhaps there's research that shows it helps keep customers loyal or gains new ones, or other benefit. if we can dig that out, than making it available for business people may help them consider their future responses to crisis.

        Upon this gifted age, in its dark hour,
        Rains from the sky a meteoric shower
        Of facts....They lie unquestioned, uncombined.
        Wisdom enough to leech us of our ill
        Is daily spun, but there exists no loom
        To weave it into fabric..
        Edna St. Vincent Millay "Huntsman, What Quarry"
        All my posts to this forum are for fair use and educational purposes only.