Posts Tagged ‘profits’


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.


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Provoked, first, by liberal celebrations of the recent decline in the poverty rate in the United States—and, then, by conservative attempts to dismiss the issue of inequality, I decided to run some numbers. Just to see.

As it turns out, the corporate profit share (on the right in the chart above) and the poverty rate (on the left) appear to have moved in tandem since the mid-1990s: when the profit share declines, so does the poverty rate, and vice versa.

This is one of those times when I don’t have a theory or an explanation. But I was reminded of that long-forgotten ruthless critic of political economy:

Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.


The best Steven Kaplan can come up with in attempting to defend Wall Street against Lynn Stout’s withering criticisms is that it has helped the U.S. corporate sector in recent decades.

If those criticisms had been accurate, the U.S. corporate sector today would be ailing. Instead, corporate profits are at historical highs both absolutely and relative to GDP. Private equity and activist investors–both Wall Street creations–have pushed companies to become more efficient. Venture capital funded companies, aided by capital from Wall Street and other investors, include firms like Amazon, Amgen, Apple, Facebook, Gilead Sciences, Google, Intel, Microsoft, and Starbucks that have changed the world as we know it. While it is impossible to prove causality, it seems highly likely that Wall Street has played an important role in these results.

And he’s right: nonfinancial corporate profits (as a share of national income, the blue line in the chart above) have in fact risen since 1985 (from 4.4 percent in 1985 to 8 percent in 2015). And Wall Street has also helped itself: financial profits (the red line above) have also risen (from 1.3 percent of national income in 1985 to 3.2 percent in 2015).

What he fails to mention is that, at the same time, the wage share of national income (the green line in the chart) has fallen: from 55.6 in 1985 (and even higher, 57.2 percent in 1992) to a low of 52.5 percent in 2014 (rebounding slightly to  53.1 percent in 2015).

Yes, indeed, Wall Street has been good for business and for itself—and terrible for everyone else, especially American workers.


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There are, of course, many aspects of the U.S. healthcare system I have not had the opportunity to discuss over the course of this series on Unhealthy Healthcare. I am thinking of the growth of new, profitable medical centers (e.g., for out-patient surgery), plus biotechnology companies, diagnostic clinics, rehabilitation centers, and nursing homes. There are also all the nurses, orderlies, bookkeepers, and administrative staff, primary-care physicians and therapists in rehabilitation services, the hospital volunteers and the underpaid staff who provide care in nursing homes, the dedicated people who set up clinics for underserved populations, and many others who are forced to work under increasingly difficult conditions to provide decent healthcare to the American people.

But no matter how hard those healthcare workers labor, the current system of U.S healthcare is a failure. It provides less healthcare at a higher cost than in other rich countries. And it continues to leave large numbers of Americans, especially workers and the poor, without access to affordable, high-quality healthcare.

The U.S. healthcare system, as it is currently configured, only really works for those who make a profit—selling health insurance, pharmaceuticals, and in-patient and acute-care services in hospitals—and those who have the wherewithal to finance their own healthcare.


As it turns out, the majority of Americans know this. According to the latest Gallup poll, 54 percent of respondents have a somewhat or very negative view of the healthcare industry. And 60 percent have only some, very little, and no confidence in the current medical system. On top of that, 82 percent worry (either a great deal or a fair amount) about the availability and affordability of healthcare in the United States.



In fact, the majority of Americans (58 percent) say they would like to see the 2010 health care law, the Affordable Care Act, replaced with care for all—along the lines presented most recently by presidential candidate Bernie Sanders.

Obviously, workers and poor people in the United States need and want a healthier healthcare system. The question then is, what would should a system look like?

Here I’ll admit, I don’t have a detailed plan of what the U.S. healthcare system should be or how exactly it should be transformed. There are plenty of such plans out there (the best known of which is probably the single-payer program developed back in 1989 by the Physicians for a National Health Program). And I’m not about to develop and present a new one.

Instead, I am guided by a lesson I learned from an old friend (a veteran of more than three decades of working in the trade-union movement): formulate and win people over to the general goal and, once they’re committed to it, let policymakers and stakeholders negotiate and work out the details to reach that goal.

In this case, the goal is universal, affordable, high-quality healthcare.

Such a system would provide high-quality healthcare (physical and mental, encompassing prevention, acute-care, substance-abuse, rehabilitation, and late-life) to all Americans (without exception, especially those who at the middle and bottom of the economic ladder) at an affordable price (since, as I see it, Americans are willing to pay for decent healthcare but it should be according to their ability to pay, which it currently is not).

That’s it. We shouldn’t care how they provide it. Just that they do so.* And if the key components of the current healthcare system stand in the way, because they’re making profits on how the system is currently organized and don’t want to see real change, they should be bypassed or nationalized (as the case requires). Then, the other private and public entities, the ones actually committed to the goal, can get on with the task of imagining and implementing the universal, affordable, high-quality healthcare system Americans deserve.


*Although, to my view, a healthier healthcare system right now probably involves some combination of single-payer (federal and state) financing and a network of non-profit, community, and cooperative healthcare providers.


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