Posts Tagged ‘economy’

alec

Alec Monopoly, “Flying Monopoly” (2015)

In the second installment of this series on “class before Trumponomics,” I argued that, in recent decades, while American workers have created enormous wealth, most of the increase in that wealth has been captured by their employers and a tiny group at the top—as workers have been forced to compete with one another for new kinds of jobs, with fewer protections, at lower wages, and with less security than they once expected. And the period of recovery from the Second Great Depression has done nothing to change that fundamental dynamic.

In this post, I want to focus on a more detailed analysis of the other side of the class relationship—capital.

fire

It should come as no surprise that one of the major changes in U.S. capital over the past few decades is the growing importance of financial activities. Since 1980, FIRE (finance, insurance, and real estate) has almost doubled, expanding from roughly 12 percent of the gross output of private industries to over 20 percent.

finance

And the rise in the share of corporate profits from financial activities was even more spectacular—from 10.8 percent in 1984 to a whopping 37.4 percent in 2002—and then falling during the crash, but still at a historically high 26.6 percent in 2015.

By any measure, U.S. capital became increasingly oriented toward finance beginning in the early 1980s—as traditional banks (deposit-gathering commercial banks), non-bank financial entities (especially shadow banking, such as investment banks, hedge funds, insurers and other non-bank financial institutions), and even the financial arm of industrial corporations (such as the General Motors Acceptance Corporation, now Ally Financial) absorbed and then profited by creating new claims on the surplus.

This process of “financialization” was the flip side of the decreasing labor share in the U.S. economy: On one hand, stagnant wages meant both an increasing surplus, which could be recycled via the financial sector, and a growing market for loans, as workers sought to maintain their customary level of consumption via increasing indebtedness. On the other hand, the production of commodities (both goods and services) became less important than capturing a portion of the surplus from around the world, and utilizing it via issuing loans and selling derivatives to receive even more.

international

Not only did finance become increasingly internationalized, so did the U.S. economy as a whole. As a result of employers’ decisions to outsource the production of commodities that had previously been manufactured in the United States and to find external markets for the sale of other commodities (especially services), and with the assistance of the lowering of tariffs and the signing of new trade agreements, the U.S. economy was increasingly opened up from the early-1970s onward. One indicator of this globalization is the increase in the weight of international trade (the sum of exports and imports) in relation to U.S. GDP—more than tripling between 1970 (9.33 percent) to 2014 (29.1 percent).

bank-concentration

The third major change in U.S. capital in recent decades is a rise in the degree of corporate concentration and centralization—to such an extent even the President’s Council of Economic Advisers (pdf) has taken notice. A wave of mergers and acquisitions has made firms larger and has increased the degree of market concentration within a broad range of industries. In finance, for example, the market share of the five largest banks (measured in terms of their assets as a share of total commercial banking assets) more than doubled between 1996 and 2014—rising from 23.2 percent to 47.9 percent.

airlines

The U.S. airline industry also experienced considerable merger and acquisition activity, especially following deregulation in 1978. The figure above (from a report by the U.S. Government Accountability Office [pdf]) provides a timeline of mergers and acquisitions for the four largest surviving domestic airlines—American, Delta, Southwest, and United—based on the number of passengers served. These four airlines accounted for approximately 85 percent of total passenger traffic in the United States in 2013.

profits-interest

Another piece of evidence that concentration and centralization have increased within the U.S. economy is (following Jason Furmanthe growing gap between corporate profits and interest-rates. The fact that corporate profits (as a share of national income, the top line in the chart above) have risen while interest-rates (the nominal constant-maturity 1-year rate estimated by the Federal Reserve, less inflation defined by the Consumer Price Index, the bottom line in the chart above) indicates that the portion of profits created by oligopoly rents has grown in recent decades.*

fire-mfg

Together, the three main tendencies I have highlighted—financialization, internationalization, and corporate rents—indicate a fundamental change in U.S. capital since the 1980s, which has continued during the current recovery. One of the effects of those changes is a decline in the importance of manufacturing, especially in relation to FIRE, as can be seen in the chart above. Manufacturing (as measured by value added as a percentage of GDP) has declined from 22.9 percent (in 1970) to 12 percent (in 2015), while FIRE moved in the opposite direction—from 14.2 percent to 20.3 percent. Quantitatively, the two sectors have traded places, which qualitatively signifies a change in how U.S. capital manages to capture the surplus. While it still appropriates surplus from its own workers (although now more in the production and export of services than in manufacturing), it now captures the surplus, from workers inside and outside the United States, via financial activities. On top of that, the largest firms are capturing additional portions of the surplus from other, smaller corporations via oligopoly rents.

13205

source

What we’ve witnessed then is a fundamental transformation of U.S. capital and thus the U.S. economy, which begins to explain a whole host of recent trends—from the decrease in rates of economic growth (since capital is engaged less in investment than in other activities, such as stock buybacks, hoarding profits in the form of cash, and mergers and acquisitions) to the rise in corporate executive pay in relation to average worker pay (which has ballooned, from 29.9 in 1978 to 275.6 in 2015).

What is clear is that the decisions of U.S. capital as it changed over the course of recent decades created the conditions for the crash of 2007-08 and the unevenness of the subsequent recovery, which culminated in the victory of Donald Trump in November 2016.

 

*Another way to get at these oligopoly rents is to distinguish between the capital share and the profit share. According to Simcha Barkai (pdf), the decline in the labor share over the last 30 years was not offset by an increase in the capital share, which actually declined. But it was accompanied by an increase in the profit share, due to a rise in mark-ups.

188223_600

Special mention

188249_600 download-1

187749_600

Special mention

187782_600 187746_600

bn-qf371_dshot_ns_20161012004534

We’ve just learned that the corporate payouts—dividends and stock buybacks—of large U.S. firms are expected to hit another record this year. At the same time, John Fernald writes for the Federal Reserve Bank of San Francisco that the “new normal” for U.S. GDP growth has dropped to between 1½ and 1¾ percent, noticeably slower than the typical postwar pace.

What’s the connection?

Fernald, as is typical of many others who have concluded the United States has entered a period of slow growth, blames the “new normal” on exogenous events like population dynamics and education.

The slowdown stems mainly from demographics and educational attainment. As baby boomers retire, employment growth shrinks. And educational attainment of the workforce has plateaued, reducing its contribution to productivity growth through labor quality. The GDP growth forecast assumes that, apart from these effects, the modest productivity growth is relatively “normal”—in line with its pace for most of the period since 1973.

What Fernald and the others never mention is that American companies’ embrace of dividends and buybacks comes at the expense of business investment, which is an important contributor to worker productivity and long-term economic growth.

In other words, what they overlook is the possibility that the current slowdown—which, “for workers, means slow growth in average wages and living standards”—may be less a product of exogenous events and more the way the U.S. economy is currently organized.

When workers produce but do not appropriate the surplus, they are victims of a social theft. And then, when a larger and larger portion of of the surplus is distributed to shareholders (both outside investors and corporate executives)—that is, the tiny group at the top who share in the booty—workers are, once again, made to pay the cost.

mike3oct

Special mention

download download-2

160919141822-white-working-class-trump-voter-infographic-head-super-169

We can thank Donald Trump for one thing: he’s put the white working-class on the political map.*

In recent months, we’ve seen a veritable flood of articles, polls, and surveys about the characteristics, conditions, and concerns of white working-class voters—all with the premise that the white working-class is fundamentally different from the rest of non-working-class, non-white Americans.

But why are the members of the white working-class attracting so much attention? My sense is, they both represent a threat—because many plan to vote for Trump and, more generally, reject much elite opinion (including, but not limited, to Trump)—and, at the same time, are assumed to be a dying breed—as the U.S. working-class becomes more female, more racially and ethnically diverse, and increasingly employed in non-manufacturing jobs. So, the argument goes, the white working-class, supposedly radically different from the rest of Americans, is motivated by fear and resentment occasioned by a loss of identity and standing.**

Hence the curiosity—best exemplified by a new CNN/Kaiser Family Foundation [ht: ja] poll, about what white working-class Americans think. The results of the poll are interesting, if only because on many issues (aside from support for or opposition to Trump and immigration) the white working-class holds views that are not all that different from other whites, blacks, and Hispanics.

The fundamental problem with CNN/Kaiser poll (as with so many others) is its basic definition of the working-class: “those who have attained less than a four-year college degree, excluding those between the ages of 18-24 who are currently enrolled in school.” As I have argued before (e.g., here and here), that’s not the working-class. It’s just people who never went to or didn’t finish college. What they’re using is a definition of the working-class that doesn’t include all those other people, many of whom have college degrees, who are forced to have the freedom to work for someone else in order to make enough money to support themselves and their families. Together, most Americans with and without college degrees work for the boards of directors of large corporations—and they don’t manage the production process or supervise other employees.

As Vivek Chibber explains,

Workers show up for work every day knowing that they have little job security; they are paid what employers feel is consistent with their main priority, which is making profits, not the well-being of employees; they work at a pace and duration that is set by their bosses; and they submit to these conditions, not because they want to, but because for most of them, the alternative to accepting these conditions is not having a job at all.

The working-class, as I am defining it then, turns out to comprise the vast majority (70-80 percent) of the U.S. population. And most of them, of course, are white.

So, what does the CNN/Kaiser pool reveal about the views of, to be clear, one portion of the white working-class? As I wrote above, on many issues, they’re not all that different from other whites or blacks and Hispanics without college degrees. In terms of their own lives, most of the so-called white working-class, as the other poll respondents, are not angry, worried, pessimistic, or unhappy. But they are dissatisfied with the country’s economic situation and with the influence on the political process of people like them. In recent years, they report it’s become harder for them to get ahead financially and to find good jobs. Finally, they blame the federal government much more than their employers or Wall Street for the economic problems facing the working-class and they believe the federal government helps wealthy people too much and members of the working-class too little.

That’s exactly the set of answers one would expect from the American working-class—white, black, and Hispanic, with and without college degrees—right now. They’re getting screwed and, while they may not be dissatisfied in their own lives, they certainly think both the economic and political systems are stacked against them. Perhaps the only surprising item in the survey is the extent to which they blame the government, and not their employers or Wall Street, for the economic problems facing the working-class.

The only major differences within the working-class have to do with Trump and the role of immigrants. While 56 percent of whites without a college degree would consider voting for Trump, most other respondents would definitely not vote for him. A similar difference emerges with respect to immigrants: a much smaller percentage of the so-called white working-class believe immigrants “strengthen our country” and a much higher percentage thinks “immigrants today are a burden on our country” than the other groups.***

In the end, those two differences—on Trump and immigration—are what make the so-called white working-class interesting to the media. It’s not their conditions or their grievances, much of which they share with other members of the working-class. It’s only the fact that they threaten to vote for the renegade presidential candidate and they’re wary about the role played by other, immigrant members of the working-class. And, of course, many of them are thrown into the “basket of deplorables” by the opposing campaign.

Both presidential candidates, then, are sowing and exploiting those differences to their own advantage, which is what U.S. politicians have always attempted to do when it comes to real or imagined divisions within the working-class. That’s how they campaign and that’s how they hope to get elected.

Trump and Hillary Clinton (and their echoes in the mainstream media) have created the “white working-class” and they hope to ride it—as a source of support or a specter—to victory in November. And then, whoever wins, they’ll abandon it—along with the rest of the working-class.

 

 

*Actually, Bernie Sanders also played an important role in focusing attention on the white working-class, especially with his stunning primary victories in Michigan and West Virginia. Since his loss to Hillary Clinton, however, the white working-class (along with the rest of the American working-class) has virtually disappeared from Democratic discourse.

**As Connor Kilpatrick has explained, the Democratic Party “has established a clear line on the white wage-earning class: they’re all either dying (demographically or literally), irrelevant in an increasingly nonwhite country, or so hopelessly racist they can go off themselves with a Miller High Life-prescription-painkiller cocktail for all they care.”

***There is one additional difference that requires mention: while a majority of whites—with (62 percent) and without (69 percent) college degrees—believe trade agreements cost the United States jobs, a much smaller percentage of blacks and Hispanics without college degrees (both 37 percent) think that’s the case.

184957_600

Special mention

184962_600 184834