Defending Wall Street

Posted: 8 September 2016 in Uncategorized
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The best Steven Kaplan can come up with in attempting to defend Wall Street against Lynn Stout’s withering criticisms is that it has helped the U.S. corporate sector in recent decades.

If those criticisms had been accurate, the U.S. corporate sector today would be ailing. Instead, corporate profits are at historical highs both absolutely and relative to GDP. Private equity and activist investors–both Wall Street creations–have pushed companies to become more efficient. Venture capital funded companies, aided by capital from Wall Street and other investors, include firms like Amazon, Amgen, Apple, Facebook, Gilead Sciences, Google, Intel, Microsoft, and Starbucks that have changed the world as we know it. While it is impossible to prove causality, it seems highly likely that Wall Street has played an important role in these results.

And he’s right: nonfinancial corporate profits (as a share of national income, the blue line in the chart above) have in fact risen since 1985 (from 4.4 percent in 1985 to 8 percent in 2015). And Wall Street has also helped itself: financial profits (the red line above) have also risen (from 1.3 percent of national income in 1985 to 3.2 percent in 2015).

What he fails to mention is that, at the same time, the wage share of national income (the green line in the chart) has fallen: from 55.6 in 1985 (and even higher, 57.2 percent in 1992) to a low of 52.5 percent in 2014 (rebounding slightly to  53.1 percent in 2015).

Yes, indeed, Wall Street has been good for business and for itself—and terrible for everyone else, especially American workers.

  1. Blair CCS says:

    Hey David,

    A couple of questions. You know of course that I agree with you on your punchline, but I’m curious about how you interpreted this graph and the associated information. (Loved your précis of Lynn Stout’s work, by the way.)

    For one thing, you compared corporate profits as share of national income in ’85 and ’15. What justifies exactly that time period? From the early ‘80s recession to that of the late naughties, there was barely any rise in corporate profits’ share of income; from 1980 to 2015, likewise barely any increase. Of course, perhaps that just highlights even more the increase in financial profits over either of those time frames.

    For another, if the profit share of income increases, then the labor share has (speaking crudely) to decrease. But without further information (or perspective), that in and of itself doesn’t necessarily bode ill for labor. If income is increasing, then labor might be doing fine even as its share falls. Of course you and I know that inequality and exploitation are a problem, but I’m just thinking that — even though the general perspective of anti-cap, for anyone who reads it regularly — is clear, just this piece wouldn’t, I think, prove compelling for someone who hasn’t already drunk the kool-aid that we have.

    Anyway, if you think either of these points have any validity whatsoever, I’d love to hear your thoughts about them.

    I do so love your work, and read it regularly. Your tone, generally, is just right. When I wrote on the AESA list about Ospina, I was thinking first about you. I think you’d like that book. Maybe you know about it and have already read it.

    Saludos solidarios,



    Blair Sandler, Ph.D., J.D. skype: dr.lapin 311-632-0269 (español/inglés) La Casa de Conciencia y Salud Minca, Barrio Pozo Santo Magdalena, Colombia La Sierra Nevada de Santa Marta

    > El 8 sept, 2016, a las 08:01, occasional links & commentary escribió: > >

  2. David F. Ruccio says:

    Good questions, Blair.

    First, the 1985 and 2015 comparison comes straight out of Kaplan’s article—to wit: “Most observers mark 1980 as the time when finance and shareholder value maximization became ascendant.” So, from 1985 onward, we see a rise both in nonfinancial and financial corporate profits.

    Second, as you note, the fall in labor’s share is a problem in and of itself, in terms of capital winning and labor losing (and all the associated problems of exploitation and inequality). We also know, via other sources (such as stagnant real wages), that labor was not “doing fine.” So, from my perspective, labor has been losing out for decades—in both relative and absolute terms.

    Make sense?

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