Posts Tagged ‘corporations’

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Tom Toles Editorial Cartoon - tt_c_c180103.tif  80b26fec55ef05d7bfb84e7187e89626

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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.

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.

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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.

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