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Monday, May 07, 2018


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.

Bernstein believes there is still slack in the job market, but adds that some of the remaining workers face barriers to reentry including "health or skill deficits, criminal records and long periods of joblessness. Others live in places where there aren’t enough jobs." (That last part lawmakers overlook when imposing nationwide measures forcing those on public assistance to look harder for jobs that don't exist in their communities.) But lack of bargaining power, Bernstein writes, contributes to the lag in wage increases. Monopolistic concentration and low union membership allows large corporations to fend off wage increases.

For all the backslapping over the official unemployment rate declining below four percent, wage growth continues to lag over time. In a paper presented at the University of Chicago last month, economist Simcha Barkai noted a 10 percent decline in the share of income going to labor over the last 30 years. Matt Stoller writes that while there is some evidence for cheap Chinese imports depressing wages, as well as the expansion in the use of robots, Barkai found no evidence robot use is holding down wages:
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.

David Dayen ("Chain of Title: How Three Ordinary Americans Uncovered Wall Street's Great Foreclosure Fraud") concurs that political corruption and market concentration go hand-in-glove. Writing at The Nation, Dayen observes, "Concentrated economic power begets concentrated political power, with big business rigging the game in its favor." Julie Morgan and Rohit Chopra argue in their report for the Roosevelt Institute, "Unstacking the Deck," the problem is not simply money in politics, but money in government. Chopra tells Dayen, "as Congress reduced its level of activity, [industry influence] has shifted much of the energy to executive and regulatory agencies.”

Jeff Spross writes at The Week that the price and inflation spikes of the 1970s translated into radical policy changes in the 1980s:
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.

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.
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:
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.

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