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It’s the profits, stupid!

There’s no real mystery behind the spectacular gains in the stock market over the course of 2017. Much of it can be explained by the rise in U.S. corporate profits.

But, as is clear from the chart above, the relationship between corporate profits (after tax, in red, measured on the right-hand side) and the stock market (the Dow Jones Industrial Index, in blue on the left) actually goes back almost a decade. Corporate profits have increased, from their low in the fourth quarter of 2008, some 176 percent. Meanwhile, the stock market has risen 182 percent from its own low in the first quarter of 2009.

Corporate profits are, of course, a signal to investors that their stocks will likely rise in value. Moreover, increased profits allow corporations themselves to buy back a portion of their stocks. Finally, wealthy individuals, who manage to capture a large share of the growing surplus appropriated by corporations, have had a larger and larger mountain cash to speculate on stocks.

Clearly, the United States has had a profit-led recovery since the crash of 2007-08, which is both a cause and consequence of the stock-market bubble.

However, that recovery has left most other Americans behind. First, corporate profits have increased in large part because workers’ wages have largely stagnated. Second, most American workers don’t own any stocks, either directly or indirectly. Stock ownership itself is highly concentrated, as the top 10 percent of households own well over 80 percent of the U.S. stock market.

And looking forward? I don’t make predictions but it’s obvious that the Republican administration is determined to do all it can to keep corporate profits growing and to make sure wealthy individuals keep a larger share of the surplus they receive. As long as that happens, we’ll continue to see the kind of lopsided recovery—including banner gains in the stock market—that has characterized the U.S. economy for the better part of the past decade.

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Body parts—from gifts to exchanges

 

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Over the course of the last two days, I’ve discussed mean gifts (which promise significant tax relief only to a small group of corporations and wealthy individuals) and mean exchanges (which leave middle-class Americans with a declining share of national income).

Now, thanks to recently completed Reuters investigation, we’re forced to confront the reality in the United States of mean exchanges that transform generous donations into desperate, mean gifts. I’m referring to the largely unregulated trade in body parts.

The selling of body parts—heads, knees, feet, torsos, and entire bodies—actually begins with the gifting of the bodies of deceased Americans, who have decided to donate their bodies to science. But in many cases it’s a mean gift, not because of the intentions of the givers (who in many cases do want to contribute to the advancement of the scientific study of the human body), but because body brokers often prey on poor people (who can’t afford the price of a proper burial).

The industry’s business model hinges on access to a large supply of free bodies, which often come from the poor. In return for a body, brokers typically cremate a portion of the donor at no charge. By offering free cremation, some deathcare industry veterans say, brokers appeal to low-income families at their most vulnerable. Many have drained their savings paying for a loved one’s medical treatment and can’t afford a traditional funeral.

“People who have financial means get the chance to have the moral, ethical and spiritual debates about which method to choose,” said Dawn Vander Kolk, an Illinois hospice social worker. “But if they don’t have money, they may end up with the option of last resort: body donation.”

Then, the body brokers—aka non-transplant tissue banks (that are distinct from organ and tissue transplant banks, which the U.S. government closely regulates)—turn around and sell or rent bodies and body parts for use in research or education.*

“The current state of affairs is a free-for-all,” said Angela McArthur, who directs the body donation program at the University of Minnesota Medical School and formerly chaired her state’s anatomical donation commission. “We are seeing similar problems to what we saw with grave-robbers centuries ago,” she said, referring to the 19th-century practice of obtaining cadavers in ways that violated the dignity of the dead.

“I don’t know if I can state this strongly enough,” McArthur said. “What they are doing is profiting from the sale of humans.”

The body brokers can charge what they want to for cadavers or deceased body parts. They negotiate prices with with research facilities—$250 for a hand, $450 for a knee, $5000 for a whole body—and even put their inventory on sale when they become overstocked.

The result is a profitable exchange for the body brokers—who of course are getting their raw materials for free—and the destruction of the gifts people have attempted to make to science.

Gail Williams-Sears, a nurse in Newport News, Virginia, said neither she nor her father realized Science Care might profit when he donated his body before his death in 2013. John M. Williams Jr, who lived 88 years, served in World War II and the Korean War, earned a master’s degree in social work and spent decades in Maryland state government advocating for children.

“Dad was very frugal,” his daughter said. “He thought it was ridiculous to pay a large amount of money to be put in the ground.” His decision to donate his body was also motivated by a lifelong interest in good health, his Christian faith and science fiction books and movies, she said. Whenever he was admitted to the hospital, he made sure to bring the donor documents with him, in case he died, his daughter said.

“I don’t remember anything in the literature that said anything about them selling his body,” she said. “I thought it was just his body going for research and it wasn’t to get gains off of someone’s charity. Well, I guess we’ve gotten to a world where everybody just makes money off of everything.”

The United States is now based on an economy in which many people can’t afford to die, and whose final gifts to science are annulled by the profit-making exchanges of largely unregulated body brokers.

 

*Selling hearts, kidneys and tendons for transplant is illegal in the United States. But no federal law governs the sale of cadavers or body parts to academic, medical, or scientific facilities.

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Mean exchanges

Yesterday, I discussed the mean-spiritedness of the Republican tax cuts—which are being sold as a gift to the middle-class but, in reality, represent a massive transfer to a small group of large corporations and wealthy individuals.

But, of course, the real violence associated with the tax-cut gift occurs before federal taxes are even levied, in the pre-tax distribution of income.

As is clear from the chart above, since the mid-1970s, the share of income captured by the top 1 percent (the red line, measured on the right-hand side) has almost doubled, rising from 10.6 percent to over 20 percent. Meanwhile, the share of income going to the middle 40 percent (the blue line, on the left) has eroded, falling from 45.2 percent to 40.4 percent.

But that’s not enough for those at the top. They want even more—and their growing share of the surplus has given them more power to elect the candidates and write the rules to obtain even more income, both before and after taxes.

Meanwhile, many in the languishing middle-class, having given up hope for any improvement in their pre-tax income share, threw in their lot with the Republicans and their promise of tax relief.

They now know that that’s a dead end, too.

The American middle-class continues to lose out, both when they exchange their ability to work for an income in markets and afterwards, when they pay their taxes to the government.

Meanwhile, the tiny group at the top has been able to rig both mechanisms, exchange and taxes, to capture and keep more of the surplus.

Something clearly has to give.

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Mean gifts

Finally, in this season of the gift, something other than the usual, tired discussion of “deadweight loss” by mainstream economists.

Deborah Y. Cohn explains that “sometimes people give bad gifts on purpose.”

Although it seems nonsensical to give someone a gift that will damage a relationship rather than strengthen it, some people deliberately do just that.

Not only are these returns a drag for businesses, they harm friendships and fray family bonds.

Of course, historically there are plenty of examples of mean-spirited, even violent gift-giving. Potlatch in the Pacific Northwest is a good example—of chiefs giving away or destroying goods in order to create or reinforce relations of unequal power within and between clans, villages, and nations.

The Republican tax bill, which President Trump signed last Friday, is another example of the violence of the gift. With one exception: whereas in potlatch the hosts demonstrate their wealth and prominence through giving away goods to everyone else, “The Tax Cuts and Jobs Act” will mostly benefit a small group of corporations and individuals that already capture and distribute to themselves most of the surplus.

Trump, Mitch McConnell, and Paul Ryan may be using the rhetoric of a gift to the middle-class but, according to a recent poll, most people remain unconvinced. They know they’re only getting pennies on the dollar of tax cuts to those at the top.

the NBC/WSJ poll finds 63 percent of Americans who think the Trump tax plan was designed mostly to benefit corporations and the wealthy, compared with 22 percent who believe it was designed to help all Americans equally.

Just 7 percent say it was designed mostly to help the middle class.

The question is, will the tax-cut gift serve to demonstrate the power of large corporations and wealth individuals or will it undermine their legitimacy?

At least right now, most people seem prepared to refuse the mean gift.

Cartoon of the day

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Cartoon of the day

Special mention