24 June 2013

The New York Times: “Profits Without Production”

As many economists have lately been pointing out, these days the old story about rising inequality, in which it was driven by a growing premium on skill, has lost whatever relevance it may have had. Since around 2000, the big story has, instead, been one of a sharp shift in the distribution of income away from wages in general, and toward profits. But here’s the puzzle: Since profits are high while borrowing costs are low, why aren’t we seeing a boom in business investment? And, no, investment isn’t depressed because President Obama has hurt the feelings of business leaders or because they’re terrified by the prospect of universal health insurance.

Well, there’s no puzzle here if rising profits reflect rents, not returns on investment. A monopolist can, after all, be highly profitable yet see no good reason to expand its productive capacity. And Apple again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.

Paul Krugman

I don’t always agree with Paul Krugman’s opinions, but this article is spot on. Also, an interesting argument for calling Apple a monopoly, based more on their profits rather than market share, a point that has been made many times before. Looking at the effects on the market and economy, a monopoly on profits (Apple) is just as damaging as a monopoly on market share ( and Microsoft).

On a related note, the monopoly from the perspective of a small developer:

What's amusing to me is that the art team tells me that the rest of the industry has gone to Windows PCs for 3D-modeling and other art needs precisely to escape the Apple tax (and these despite Apple's reputation as the go-to computer for artists!). So it's only engineering that's stuck paying the Apple tax. Certainly, if Android were too crush iOS devices, small development shops will be the first to switch sides completely just to avoid paying the Apple tax, which stands at $1700/developer. I know I'll be switching our art team over at the next available opportunity. In the mid-1990s, I dreamed of the days when we'd escape the Microsoft hegemony. But now that we've largely escaped it's clear the Apple overlords are much worse than the Microsoft ones ever were.

Piaw Na

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