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Society is increasingly divided between the haves and have-nots.

Inequality has become a buzzword that's lazily thrown around for political points without following up on the implications, as if someone can wave a magic wand and just create a fairer, better world. ย 

What's the issue?

Modern society disproportionately rewards innovators and asset-holders.

In many ways, rewarding innovators has always been the price of progress.

Produce something of great value to society, and society will greatly reward you.

Assetholders benefit because assets are 'Value Vaults'. Asset values usually increase over time as a function of the 'value' of society, so assetholders tend to benefit as society prospers.

And there's no doubt that we are collectively 'better off' compared to our ancestors, even as we are 'worse off' relative to society's big winners.

Smartphones are the most obvious example of these collective benefits.

In 1991, it would require over 10 devices and $3,000 to replicate basic smartphones ๐Ÿ‘‡

The Digital Economy, GDP and Consumer Welfare: Theory and Evidence

Can innovation and greater equality co-exist?

The big question is whether a growing gap between rich and poor is the price of progress. If we want to generate technological advances and innovations that improve productivity, must we accept that there will be some who end up with a larger share of those fruits?
Is there a trade-off between innovation and equality?
Many in business and government say that inequality is merely the price that society pays to enter into a more exciting world. They rationalise this position by saying that the focus should not be on inequality per se, or โ€˜who gets more than me?โ€™, but on progressโ€”i.e. โ€˜am I better off than I was before?โ€™
Innovations are seen as things that make everyone better off even if the gains differ. Yet in reality, โ€˜no losersโ€™ innovations are rare.
Electronic supermarket checkout machines displace cashiers today just as steel mills displaced blacksmiths a century ago. Even as they raise average levels of wellbeing, most inventions make some people worse off.

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At the heart of this debate is technology.

Technology removed the old constraints & economies of scale stretched further than ever before. ๐Ÿ‘‡

...there were capacity limits on individual companies 'in the old days', because they could only make a finite amount of products in their factories.
Amazon has no such constraints, and (theoretically) is only limited by the capacity of global production.
The entire manufacturing world is Amazon's factory, and they provide the customer base, the data, the algorithms, the brand loyalty (Prime) and so much more. ย 

Are investors too optimistic about Amazon?
โ€˜If Amazon were to pull it off, it would be the most aggressive expansion of a giant company in the history of modern business.โ€™ They DID pull it off. How did they do it, and what role do the โ€˜intangiblesโ€™ play?

As it's Amazon, quick clarification for the jUsT tAx BeZoS MoRe/it's all worker exploitation types.

In 2020, Amazon employed 798,000 people & made a profit of $11.5bn.
That's $14,521 profit per employee.

For comparison:

  • Visa employed 19,500 people. Profit per employee $619,487.18
  • Fannie Mae employed 7,500 people. Profit per employee $1,888,000.00
  • Walmart employed 2.2 million people. Profit per employee $6,764

(it's not as simple as just taxing. If it was, we'd already be doing it)

More here:

The 25 Most Profitable Companies in the US
The pandemic rolled over Americaโ€™s small businesses like an avalanche. Some were already struggling and COVID-19 was the final straw. Others were thriving, but thriving in industries like dining or...

Where does productivity fit into this puzzle?

Productivity, in economics, measures output per unit of input, such as labor, capital, or any other resource
Productivity is the key source of economic growth and competitiveness.
A countryโ€™s ability to improve its standard of living depends almost entirely on its ability to raise its output per worker (i.e., producing more goods and services for a given number of hours of work)
When productivity fails to grow significantly, it limits potential gains in wages, corporate profits, and living standards.

Labour force productivity growth has been slow, and back in 2017 this FRED blog noted that:

  • Most of the economic growth has been driven by increases in labor inputs and not by increases in labor productivity
  • The majority of growth in output has come from increases in hours instead of increases in labor productivity ๐Ÿ‘‡

In layman's terms, people worked longer hours for similar results. Not ideal.

Goldman's have taken a look at recent data, and make the case that things are about to change...

  • Labor productivity growth disappointed in the decade preceding the pandemic, averaging only ยฝ -1% in the US, the Euro Area and the UK.
  • Some of this weakness may reflect mismeasurement of the positive impact of new technology.
  • But even leaving aside this issue, we see three signs why the underlying pace of measured productivity growth may now be accelerating.

Technology and the Productivity Rebound (Zhestkova)

The third argument for a persistent acceleration in labor productivity growth is evidence of increased economic dynamism. Exhibit 7 shows that new business applications surged in the US in mid-2020 and remain unusually high.
France and Germany also experienced a significant but less dramatic pick-up in new business formation.
Economic research suggests that a rise in entrepreneurship should boost productivity growth as new firms are an important source of innovation-driven TFP growth.

There is some evidence that technological acceleration, and potentially the second wave of the IT revolution, have contributed to the recent pickup in productivity growth.

There's little doubt that the pandemic has spurred entrepeneurship, and there are genuine reasons to hope that productivity picks up on the back of it.

However, it's unlikely to solve the inequality problem ๐Ÿ‘‡

Clay Shirky's 'Power Law Distribution' Theory (2003)

"In systems where many people are free to choose between many options, a small subset of the whole will get a disproportionate amount of traffic (or attention, or income), even if no members of the system actively work towards such an outcome,"
"This has nothing to do with moral weakness, selling out, or any other psychological explanation. The very act of choosing, spread widely enough and freely enough, creates a power law distribution."
Inequality occurs in large and unconstrained social systems for the same reasons stop-and-go traffic occurs on busy roads, not because it is anyone's goal, but because it is a reliable property that emerges from the normal functioning of the system.

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