Posts Tagged ‘chart’

AR-180209517

Must come down. . .

I’m not referring to karma or the application of Newton’s law of universal gravitation. No, it’s just the way capitalism works.

DJIA

Take the stock market, for example. Last Friday, the Dow Jones Industrial Average closed down 666 points, or 2.5 percent, its biggest percentage decline since the Brexit turmoil in June 2016 and the steepest point decline since the 2008 financial crisis.

The large decline is really no surprise, since the U.S. stock market—a thoroughly speculative institution within contemporary capitalism—has been on the rise, based on soaring corporate profits, since 2009.

Rising stock values are related to corporate profits in two ways: First, they are bets on corporate profits, in the sense that stock speculators expect future prices to track the rate at which corporations are able to extract surplus and realize profits from their workers. Second, the profits themselves are distributed by corporations—internally, to buy back their own stocks, and to wealthy individuals (such as CEOs and recipients of dividends), who are in the position to capture their own portion of the surplus and use it to engage in speculative stock-market purchases.

So, stock-market indices went up—and then, last week, they came down.

No one knows why the stock market plummeted, although there are many stories out there. One of them is the jobs report—indicating 200 thousand new jobs in January and an increase in workers’ wages—and the risk that the profit rate might fall.

That’s another one of those up-down features of capitalism. And every time the profit rate falls, as if like clockwork, a recession or depression is just around the corner. Corporations cut back spending, workers are laid off, and then—perhaps, always maybe—the conditions are created for another economic upturn.

wages

Here’s what’s interesting: while average hourly earnings for all employees on private nonfarm payrolls once again increased (in January by 9 cents to $26.74, following an 11-cent gain in December, and thus, over the year, by 75 cents, or 2.9 percent), average hourly earnings of private-sector production and nonsupervisory employees increased by only 3 cents (to $22.34, or 2.4 percent on an annual basis) in January—in both cases, just a bit more than the rate of inflation. And by another measure—real weekly earnings—wages actually fell (by 1.1 percent) during the last quarter of 2017.

So, there’s no clear indication that workers’ wages are finally ready to take off (as mainstream economists and business commentators keep promising) or that they’ll make a large dent in corporate profits.

prod-wages

In fact, as is clear from the chart above, workers’ wages continue to lag far behind increases in productivity—literally no change compared to an increase of almost 9 percent, respectively, since 2009.

Still, even the threat that workers’ wages might rise seems to have spooked the stock market, which tells us something else about capitalism: the members of the small group who, in terms of wealth and power, stand above the rest by benefitting from and betting on corporate profits are themselves no more than uncertain followers of the herd.

Up and then down again. . .

Oxfam

According to Oxfam’s analysis of data produced by Credit Suisse (which I analyzed in a different manner late last year), 42 billionaires now own the same wealth as the bottom half—3.7 billion people—of the world’s population.

Together, those 3.7 billion people own only one half of one percent (0.53 percent) of the world’s wealth, a figure that rises to just about one percent (0.96 percent) when net debt is excluded.

In 2017, 42 billionaires on the Forbes billionaires list had a cumulative net worth of $1,498 billion—more than the wealth of the bottom 50 percent. When debt is excluded, that figure rises to 128 billionaires, who had a net worth of $2,694 billion.

Over the last decade, ordinary workers have seen their incomes rise by an average of just 2 percent a year, while billionaire wealth has been rising by 13 percent a year—nearly six times faster.

Without a fundamental change in economic institutions, the arc of capitalist history will continue to bend toward greater inequality.

E4

One of the most important stories I read, but did not write about, while I was away was the launch of the World Inequality Report 2018.*

The authors of the report confirm what Branko Milanovic and others had previously discovered: that a representation of the unequal gains in world economic growth in recent decades looks like an elephant. Thus, the real incomes of the bottom 50 percent of the world’s population (except the poorest, at the very bottom) have increased, the incomes of those in the middle (especially the working-class in the United States and Western Europe) have decreased, and the global top 1 percent has captured an outsized portion of world economic growth since 1980.**

As I explained back in 2016, the “elephant curve” makes sense of some of the significant changes within global capitalism:

At one time (especially in the nineteenth century), [capitalist globalization] meant industrialization in the global north and deindustrialization in the mostly noncapitalist global south (which were, in turn, transformed into providers of raw materials, which became cheap commodity inputs into northern capitalist production). Later, especially after decolonization (following World War II), we saw the beginnings of capitalist development in the south (under the aegis of the state, with a set of policies we often refer to as import-substitution industrialization), which involved a reindustrialization of the south (producing consumer goods that were previously imported) and a change in the kinds of industry prevalent in the north (which both exported consumer goods to the rest of the world, which after the first Great Depression and world war were once again growing, and often provided inputs into the production of consumer goods elsewhere). Later (especially from the 1980s onward), with the accumulation of capital in India, China, Brazil, and elsewhere, noncapitalist economies were disrupted and millions of peasants and rural workers (and their children) were forced to have the freedom to sell their ability to work in urban factories and offices. As a result, their monetary incomes rose (which is not to say their conditions of life necessarily improved), which is reflected in the growing elephant-body of the global distribution of income.

But that’s not the real elephant in the world. The big issue that everyone is aware of, but nobody wants to talk about, is the obscene degree of economic inequality in the United States.

E10

As it turns out, if the global distribution of income in the future followed the trajectory set by the United States, inequality would significantly increase. As is clear in the chart above, the share of income going to the top 1 percent would rise dramatically (from less than 21 percent today to close to 28 percent of global income by 2050) and that of the bottom 50 percent would fall off precipitously (from approximately 10 percent today to close to 6 percent).

The grotesque level of inequality in the United States—now and as it worsens looking forward, with stagnant wages and enormous tax cuts for large corporations and wealthy individuals—is the real elephant in the world.

 

*The World Inequality Report, created by the World Inequality Labis the latest in a series of major surveys of the world economy, which includes the World Bank’s World Development Report (beginning in 1978), the International Monetary Fund’s World Economic Outlook (beginning in 1980, first published annually, then biannually), and the United Nation’s Human Development Report (beginning in 1990). Each, of course, uses a different lens to make sense of what is going on in the world economy.

**The elephant curve combines two different scaling methods of the horizontal axis: one by population size (meaning that the distance between different points on the x-axis is proportional to the size of the population of the corresponding income group), the other by the share of growth captured by income group (such that the distance between different points on the x-axis is proportional to the share of growth captured by the corresponding income group), as in the charts below:

A1

A2

profits-stocks

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.

labor share

The United States is now more than eight years out from the end of the Great Recession and the one-sided nature of the recovery is, or at least should be, clear for all to see.

Even as unemployment has dipped below the so-called “natural rate,” workers are far from recovering all they’ve last in the past decade.

According to the official data illustrated in the chart above, the labor share of national income remains just above the lowest level it reached in the entire postwar period. Using 100 in 2009 as the index value, the current labor share has fallen to 96.5—down from 110.24 in 2001 and 114 in 1960.

The question is, how low can the labor share go?

corp taxes

One of the rationales for the great Republican tax heist of 2017 is that American corporations desperately need tax relief.

However, as is clear from the chart above, the current corporate tax rate is already very low—not absolutely (since it was in fact lower in 2009, when corporate profits fell during the Great Recession), but certainly in comparison to the rest of the postwar period.*

Today, the effective corporate tax rate in the United States is only 20.4 percent, lower almost by half than the much-ballyhooed statutory rate of 38.91 rate and less than half of what it was in the mid-1980s.

One can only imagine, then, how low the effective rate will be if and when the statutory rate is reduced according to the tax bills passed through the U.S. House of Representatives and the Senate. They both cut it to 20 percent, on a permanent basis—which is the biggest one-time drop in the business tax rate ever.

 

*The effective corporate tax rate is defined here as the percentage difference between corporate profits before and after tax (both calculated without IVA and CCAdj adjustments), according to statistics from the U.S. Bureau of Economic Analysis.

Estate

This one is for my students—and everyone else who is unaware of exactly how the current estate tax works and who is affected.

As it is now, the estate tax affects a tiny group of very wealthy Americans, applying only when someone leaves assets worth more than $5.49 million to their heirs. Together, parents can leave $11 million to their children without paying a penny in estate taxes. Thus, according to 2016 data from the Internal Revenue Service, only 5,219—or 0.2 percent of the total—left estates large enough to qualify for the tax.

The total assets in those estates (the left column of the chart above) amounted to $107.8 billion, consisting mostly of stock, bonds, and other business assets. (The rest was cash, real estate, and art.) Of that total, only $2.7 billion—or 2.5 percent—consisted of “farm assets,” that is farm land and other assets used in conjunction with a farm or agricultural business.

After all the adjustments were made (including debts and fees), the taxable estates (the center column) were reduced to $65 billion.

And the taxes on those estates (the right-hand column) amounted to only $18.3 billion.

So, we’re talking about a gross tax rate of only 17 percent on the estates of only 5,219 people, which represents only 0.2 percent of the Americans who died in 2016.

The heirs of the very small group of wealthy people like them are the only ones who in future years will benefit from current Republican plans to repeal the estate tax. The rest of us will pay the bill.