Where is all the money going?
by Tom Sullivan
Image by Picutres of Money, CC BY-SA 2.0 via Flickr.
Gigantism may or may not precede extinction over time. A more immediate question is, extinction for whom?
Axios reports that as tight as the labor market seems, corporations seem determined to hold on to their high profits for as long as possible before sharing with the workers producing them. The growing consensus, writes Steve LeVine, is because they can:
"As long as firms have the clout to hold back pay increases, they will," Jared Bernstein, chief economic adviser to Vice President Joe Biden during the Obama administration, told Axios today.The standard narrative for explaining the lag in pay is lower productivity growth and increasing automation. Mark Zandi, chief economist at Moody's Analytics, however, cites less-noted statistics that suggest wages may be slowly catching up. At least in the short term.
So where is all the money going? "Profits have been rising over time," Barkai said last week. And he put a number on it. "To give you a sense of how large these profits are, if you look over the past 30 years... per worker, how much have these dollars increased? It's about $14,000 per worker. And that's a really big number because, in 2014, personal median income was about $28,000." Barkai's models show that this effect is more pronounced in concentrated industries and less pronounced in competitive ones. Had concentration remained at the levels we saw 30 years earlier, one model in his paper suggested that wages, output, and investment would be substantially higher.That they are not may be a function of policy rather than globalization pressures and changes in technology. Sabeel Rahman, Assistant Professor of Law at Brooklyn Law School, studies the interaction between money and democracy. He told the conference, "Economic power and concentration increases inequality while also undermining economic dynamism." It is no accident. Antitrust enforcement is all but dead.
Many businesses hated high wage growth; it translates into higher labor costs. Not surprisingly, in the 1970s, an organized business lobby first really emerged on a national scale, pushing for deregulation and a rollback of worker power. Unionization levels began to decline in earnest, as businesses got serious about beating back labor. The turn toward right-wing economic policy began, culminating in the Reagan revolution.American macroeconomic policymaking since the start of the Reagan era, writes Spross, "is built on the implicit assumption that properly managing the economy requires breaking workers' bargaining power and continuously swatting down their demands for better compensation." Spross concludes:
Fed Chair Paul Volcker crushed inflation by hiking interest rates into the stratosphere. This set off a massive recession in 1981 — rivaling the 2008 collapse in some ways. Millions of working-class Americans were thrown out of jobs for years, and already-struggling unions went into a tailspin.
This wasn't the result of a failed economic strategy. It was the result of a successful one. Now we have low unemployment and low inflation and booming business profits. And it's all made possible by widespread stagnation in living standards for everyone in the middle class on down. Workers can no longer put serious pressure on their employers: They've been scattered, demoralized, stripped of their unions, and transformed into disposable commodities.The sitting president won his office by appealing to the simmering grievances of middle class Americans. He blamed globalization, foreigners, and bad deals with foreign countries for their feeling left behind and disposable. We are animals. We identify enemies by their faces more easily than adverse policy decisions. Policies have no faces, but they can have fat wallets.