Bottom line

The business press is having a hard time figuring out this one: the combination of unrelenting drama in and around Donald Trump’s White House and the stability (signaled by the very low volatility) on Wall Street.

As CNN-Money notes,

One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era.

Despite enormous question marks swirling around the fate of President Trump’s economic agenda and his political future, American financial markets have remained unusually calm.

What’s going on?

What investors actually hate is not uncertainty but, rather, threats to profits. And corporate profits have been growing spectacularly during the recovery from the Second Great Depression. Between the fourth quarter of 2008 and the first quarter of 2017, corporate profits rose more than 150 percent. Meanwhile, U.S. stocks (as measured by the Standard & Poor’s 500) increased by more than 200 percent. The rise in stock prices stems both from the growth in corporate profits and from gains in the stock market itself, which together have fueled further increases in the stock market with steadily declining levels of volatility.

As Ruchir Sharma admits,

Mr. Trump’s mercurial ways may be a source of great concern or indifference, depending on your ideological leanings. But Wall Street doesn’t seem to care one way or other.

What Wall Street cares about is not uncertainty but profits.

That’s the bottom line.

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Executive committee

CEO salaries continue to soar—last year reaching a ratio to average-worker pay of 347 to 1.

While the profits of U.S. corporations have reached historic highs.

But corporate CEOs and boards of directors still want more—more deregulation, more tax cuts. And, as Matthew Goldstein explains, since his inauguration Donald Trump has met with hundreds of executives, including at least 41 of last year’s 200 best-paid CEOs.

Back in 1848, it was already clear that

The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.

 

The real mystery

Neil Irwin would like us to believe there’s a mystery surrounding the U.S. economy. But it’s not what one might expect:

The real mystery. . .isn’t why wages are rising so slowly, but why they’re rising so fast.

Really?!

In Irwin’s model, workers’ wages should rise at the same rate as productivity combined with inflation. And he’s worried that wages are rising faster than that right now.

Except they’re not. And they haven’t been for decades.

As is clear from the chart at the top of the post, the change in workers’ wages (hourly wages for production and nonsupervisory workers) has often surpased the rate of growth of per capita output (GDP per capita) for long periods of time. But when we add in inflation (according to the Consumer Price Index), only rarely in recent decades have wages surpassed the sum of output and price changes (during some months of some recessions). In general, workers’ wages have fallen short—in many cases, by 4 and 5 percentage points.

And that’s been going on for decades, which is why the labor share of national income has been falling. Workers produce more, prices go up, and wages rise by much less.

Even recently, after a short period when wages were rising faster than productivity plus inflation (from the second quarter of 2015 to the third quarter of 2016), that trend has continued. In the first quarter of 2017, when wages rose at an annual rate of 2.4 percent, the rate of growth of output per capita and inflation was higher, at 3.9 percent.

For Irwin, as for most mainstream economists, the real mystery is why productivity has been growing so slowly—because they cling to the idea that everyone, including workers, will benefit if only they could find some way to boost productivity.

But that ship sailed long ago. Workers’ wages haven’t matched the growth of the value workers produce for decades. And there’s no reason to expect that trend to change in the foreseeable future—not when employers can get away with paying workers as little as possible.

As I see it, the real mystery is why Irwin and mainstream economists continue to hold to the myth that workers will benefit from rising productivity.

It doesn’t take a Sherlock Holmes (or, if you prefer, Kurt Wallander) to figure out that, if they continue to focus on productivity and its supposed benefits, they can try to keep things just as they are right now.

But the rest of us know the existing economic institutions have failed—and failed miserably for decades now—and that radically new ways of organizing the economy have to be imagined and enacted.

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“We need people to go to work”

Emily Badger is right:

The new White House budget proposal is built on a deep-rooted conservative belief: The government should help those who are willing to work, and cull from benefit rolls those who aren’t.

But it’s also a deep-rooted liberal belief. Lest we forget, it was Bill Clinton who signed the original let-them-work-or-starve welfare reform in 1996 (two years after signing the Violent Crime Control and Law Enforcement Act, the largest crime bill in history).*

As I argued back in March,

liberals and conservatives agree on very little these days, especially now that we find ourselves in the era of Donald Trump. But they do seem to find common ground on one thing: the so-called dignity of labor.

Basically, liberals and conservatives have long shared the view that government programs should be redesigned to make sure people—especially the members of the working-class, white, black, and Hispanic—are forced to have the freedom to sell their ability to work to someone else.

Donald Trump’s first budget is merely the latest proposal to implement this view, held by liberals and conservatives alike.

 

*In general, according to the Center on Budget and Policy Priorities, work requirements have done little to reduce poverty, and in some cases, they push families deeper into it:

Work requirements rest on the assumption that disadvantaged individuals will work only if they’re forced to do so, despite the intensive efforts that many poor individuals and families put into working at low-wage jobs that offer unpredictable hours and schedules and don’t pay enough for them to feed their families and keep a roof over their heads without public assistance of some kind.  Too many disadvantaged individuals want to work but can’t find jobs for reasons that work requirements don’t solve:  they lack the skills or work experience that employers want, they lack child care assistance, they lack the social connections that would help them identify job openings and get hired, or they have criminal records or have other personal challenges that keep employers from hiring them.  In addition, when parents can’t meet work requirements, their children can end up in highly stressful, unstable situations that can negatively affect their health and their prospects for upward mobility and long-term success.

 

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