Posts Tagged ‘profits’

A recent paycheck for Delores Leonard shows her hourly wage of $8.25 for working at a McDonald's Restaurant, the minimum wage in Illinois, in Chicago

Delores Leonard lives with her two daughters in Chicago and has worked for seven years at McDonald’s.

Her Illinois minimum wage is $8.25 an hour. Assuming she works the same number of hours each week (and gets two weeks of unpaid vacation), her annual income after taxes is $14,626.

McDonald’s reported $7.2 billion in second quarter sales, which generated a net income of $1.39 billion. That’s a profit margin of 19.31 percent.

McDonald’s CEO Don Thompson took home total compensation of $9.5 million in 2013.

 

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Once again, as in 2010, a specter is haunting the United States—the specter of deflation.

That’s certainly the fear registered by Jon Hilsenrath and Brian Blackstone, writing for the Wall Street Journal.

Behind the spate of market turmoil lurks a worry that top policy makers thought they had beaten back a few years ago: the specter of deflation.

A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.

Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.

The deflation concern is particularly pronounced in Europe and Japan, two economies where policy makers are struggling to come up with solutions to counter especially slow economic growth.

Actually, what we’re seeing right now is disinflation, a slowing of the rate of price increases. But the fear is that disinflation may collapse into deflation, a Japan-style decline in the overall level of prices, in Europe and eventually in the United States.

And why is it a specter? Not because a decrease in prices hurts ordinary workers—who, of course, facing stagnant wages and bad job prospects, would welcome some relief from inflation. No, the fear is that deflation will cut into corporate profits, since it’s a symptom of extremely weak demand. This leads to a slowdown in economic activity and less production and investment by companies. It’s also a sign that the real value of the debt overhang—especially the private debt of households and businesses—will remain high, thus undermining any further increase in lending, and reinforcing the uneven and faltering rate of growth of production and investment.

Thus far, the specter of deflation has not caused all the powers of old United States and Europe to enter into a holy alliance to exorcise this specter. There are still too many antigovernment, inflation-fear-mongers out there for such an alliance to form. But the longer those powers continue on their current trajectory, the higher the risk the current recovery will collapse into deflation.

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Back in August, James Surowiecki observed that the lack of an Ebola treatment was disturbing but predictable—because it’s simply not profitable for corporations in the pharmaceutical industry.

When pharmaceutical companies are deciding where to direct their R. & D. money, they naturally assess the potential market for a drug candidate. That means that they have an incentive to target diseases that affect wealthier people (above all, people in the developed world), who can afford to pay a lot. They have an incentive to make drugs that many people will take. And they have an incentive to make drugs that people will take regularly for a long time—drugs like statins.

This system does a reasonable job of getting Westerners the drugs they want (albeit often at high prices). But it also leads to enormous underinvestment in certain kinds of diseases and certain categories of drugs. Diseases that mostly affect poor people in poor countries aren’t a research priority, because it’s unlikely that those markets will ever provide a decent return. So diseases like malaria and tuberculosis, which together kill two million people a year, have received less attention from pharmaceutical companies than high cholesterol. Then, there’s what the World Health Organization calls “neglected tropical diseases,” such as Chagas disease and dengue; they affect more than a billion people and kill as many as half a million a year. One study found that of the more than fifteen hundred drugs that came to market between 1975 and 2004 just ten were targeted at these maladies. And when a disease’s victims are both poor and not very numerous that’s a double whammy.

Unfortunately, the best solution Surowiecki could offer was to reward companies for creating substantial public-health benefits by offering prizes for new drugs.

Leigh Phillips offers much the same kind of analysis of the unwillingness of the pharmaceutical industry to invest in research to produce the necessary treatments and vaccines for unprofitable diseases. In an interview with Amy Goodman [ht: dw], he adds an additional dimension:

I think we need to look at the political and economic circumstances, particularly around this particular disease both in the United States and Western countries in terms of the funding for research, where that’s coming from, and in terms of austerity in Europe, but also austerity in West Africa, as well. There’s sort of two prongs to this. The first, of course, was that, you know, over the last few months we’ve seen over and over again people from the CDC, senior figures from the WHO, even John Ashton, the head of the U.K. Faculty of Health, who have said, basically, that the knowledge is there, the know-how is there—we have five candidate vaccines, there’s a number of other different treatments that, you know, are well in hand—but there just hasn’t been any buy-in from the major pharmaceutical companies. John Ashton, as I was saying, from the U.K. Faculty of Health, you know, sort of the doctor-in-chief, if you will, in the U.K., described this as “the moral bankruptcy of capitalism.” It sounds, you know, quite vituperative there, quite explosive language, but it really expresses the anger that a lot of the researchers feel about how, look, we know what to do here, but this is just an unprofitable disease.

As a result, Phillips offers a much more comprehensive solution:

Over these past few months, the worst Ebola outbreak in history has exposed the moral bankruptcy of our pharmaceutical development model. The fight for public health care in the United States and the allied fight against healthcare privatization elsewhere in the West has only ever been half the battle. The goal of such campaigns can only truly be met when a new campaign is mounted: to rebuild the international pharmaceutical industry as a public sector service as well as address wider neoliberal policies that indirectly undermine public health.

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154755_600 Steve Bell 10.10.14

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profits

The Wall Street Journal reported today that U.S. corporations “posted record profits during the second quarter.”

After-tax corporate profits, without inventory valuation and capital consumption adjustments, rose 6% from the first quarter to a seasonally adjusted annual rate of $1.840 trillion—after two consecutive quarters of declining profits. Profits last quarter were up 4.5% from a year earlier. Thursday’s report included the first profit estimates, which aren’t adjusted for inflation, for the second quarter. . .

As a share of nominal GDP, corporate profits rose last quarter but fell short of an all-time high.

Profits hit a record 10.7% of GDP in the third quarter of 2013, slipping to 10.5% in the fourth quarter and 10.2% in the first quarter. They totaled 10.6% of GDP in the second quarter.

At the same time, consumer spending declined in July. Why?

On the surface, the weak spending figures appear at odds with accelerating job creation. The last six months saw the strongest stretch of payroll gains since 2006. Underpinning those gains, however, was hiring in low-wage fields such as restaurants, retailers and temporary jobs. At the same time, a historically high number of Americans aren’t participating in the labor force or are working part time but would prefer a full-time job. . .

“Higher wages have been slow to appear and gains in the stock market are not enjoyed by all,” said Chris Christopher, an Global Insight economist. “More widespread income gains are needed to get all consumers back on solid footing.”

In other words, it’s still a tale of two recoveries: the best of times for corporate profits, the worst of times for the vast majority of the population.

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