Booming Profits and Falling Wages
Floyd Norris has a lengthy and highly nuanced article in today's NY Times about the new data showing that corporate profits are way up while workers wages are down. It's a good article but it's so hedged with various caveats as to obscure the real meaning.
This article by the AP's Paul Wiseman from a couple of days ago gets to the point:
Strong second-quarter earnings from McDonald's, General Electric and Caterpillar on Friday are just the latest proof that booming profits have allowed Corporate America to leave the Great Recession far behind.
But millions of ordinary Americans are stranded in a labor market that looks like it's still in recession. Unemployment is stuck at 9.2 percent, two years into what economists call a recovery. Job growth has been slow and wages stagnant.
"I've never seen labor markets this weak in 35 years of research," says Andrew Sum, director of the Center for Labor Market Studies at Northeastern University. Wages and salaries accounted for just 1 percent of economic growth in the first 18 months after economists declared that the recession had ended in June 2009, according to Sum and other Northeastern researchers.In the same period after the 2001 recession, wages and salaries accounted for 15 percent. They were 50 percent after the 1991-92 recession and 25 percent after the 1981-82 recession.
Corporate profits, by contrast, accounted for an unprecedented 88 percent of economic growth during those first 18 months. That's compared with 53 percent after the 2001 recession, nothing after the 1991-92 recession and 28 percent after the 1981-82 recession.
This is unprecedented. Some of it is the problem of demand, of course. We're in the predictable condition that Keynes diagnosed and prescribed massive government intervention to counteract. Businesses don't hire or keep workers out of the goodness of their hearts in America. If they don't need them, they don't need them.
And judging from the claptrap these CEOs are babbling every chance they get (read the article), they are planning to squeeze more than just their workers --- they want to use this situation to blackmail the government into cutting their taxes and deregulating them even more than they already are. It doesn't make sense, of course. They are sitting on a ton of capital, it's not like they don't have the money to invest. It's sheer opportunism and they'll probably get away with it.
But there is something else going on as well:
U.S. corporations are expanding overseas, not so much at home. McDonalds and Caterpillar said overseas sales growth outperformed the U.S. in the April-June quarter. U.S.-based multinational companies have been focused overseas for years: In the 2000s, they added 2.4 million jobs in foreign countries and cut 2.9 million jobs in the United States, according to the Commerce Department.
So, it's not as if their profits are being being put to work at all. They just aren't being put to work in the US. And if the political establishment has its way, they'll be doing even more. Free trade deals are on the top of both parties' "jobs agenda." If all goes well, they'll end up with a few high profile loopholes temporarily closed in exchange for lower tax rates forever and some sweetheart trade deals. With any luck they won't even have to give up the loopholes.
For a look at what a rational jobs agenda would look like, Bob Borosage at Campaign for American's future has thoughtfully provided one, here. Just as soon as we finish mercilessly cutting the hell out of both taxes and spending, I'm sure Washington will get right on it.