Profits are an essential part of capitalism but the large increase of profits in America can exploit monopolies and deepen the inequality in various ways. If companies capture more profits than they can spend, it can lead to a shortfall of demand. Consumers might pay too much for the goods.
America’s high profits can be explained based on national-accounts data, which show that the fall in the share of output going to workers over the past decade is equivalent to about 60% of the rise in domestic pre-tax profits. Scholars typically have three explanations for this: technology, which has allowed firms to replace workers with machines and software; globalization, which has made it easier to shift production to lower cost countries; and a decline in trade-union membership.But none of these accounts can explain the most troubling aspect of America’s profit problem, which is its persistence.
However, there are suggested ways to normalize the margin and those are through creeping consolidation, concentration, growing clout of giant institutional shareholders, and antitrust regulators.
For more on this story, economist.com delves more into this.
