Posts Tagged ‘profits’

Oops!

Posted: 29 April 2016 in Uncategorized
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DJIA

Capitalism is, if anything, remarkably unstable.

Yesterday, the Dow Jones Industrial Average dropped more than 200 points (a bit more than 1 percent). And, today, it’s already down more than half that amount—and headed lower.

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What’s going on?

Well, for one thing, corporate profits are declining.

U.S. corporate profits, weighed down by the energy slump and slowing global growth, are set to decline for the third straight quarter in the longest slide in earnings since the financial crisis.

Weakness was felt across the board, with executives from Apple Inc. to railroad Norfolk Southern Corp. and snack giant Mondelez International Inc. saying the current quarter remains tough. 3M Co., which makes tapes, filters and insulation for consumer electronics, forecast continued weak demand for that industry. Procter & Gamble Co.reported sales declines in its five business categories despite price increases.

And that’s exactly how capitalism works: corporations got exactly what they wanted in the early years of the recovery—with cheap financing, low wages, and foreign sales, which fueled high profits. And now those same conditions are coming back to bite them. And so they’re deciding to engage in less investment, which is further slowing growth and cutting into profits.

As we know, under capitalism, what goes up must come down—even for capitalists and their profits.

Fast Food Workers Protest For Increased Wages Ahead Of McDonald's Annual Shareholder Meeting

One week ago, the McDonald’s Corporation reported a 35-percent increase in profits (from $811.5 million in the period last year to $1.1 billion) in the quarter that ended 31 March. A few days later, former McDonald’s President and CEO Ed Rensi published an opinion piece in Forbes to explain why raising the minimum wage would be a huge mistake.

Let’s do the math: A typical franchisee sells about $2.6 million worth of burgers, fries, shakes and Happy Meals each year, leaving them with $156,000 in profit. If that franchisee has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirement eats up three-quarters of their profitability. (In reality, the costs will be much higher, as the company will have to fund raises further up the pay scale.) For some locations, a $15 minimum wage wipes out their entire profit.

Recouping those costs isn’t as simple as raising prices. If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases. (If you’re a McDonald’s regular, there’s a reason you gravitate towards an extra-value meal or the dollar menu.) Instead, franchisees can absorb the cost with a change that customers don’t mind: The substitution of a self-service computer kiosk for a a full-service employee.

What Rensi doesn’t mention is that U.S. taxpayers are subsidizing McDonald’s profits.

As Ken Jacobs reports,

Workers like Terrence Wise, a 35-year-old father who works part-time at McDonald’s and Burger King in Kansas City, Mo., and his fiancée Myosha Johnson, a home care worker, are among millions of families in the U.S. who work an average of 38 hours per week but still rely on public assistance. Wise is paid $8.50 an hour at his McDonald’s job and $9 an hour at Burger King. Johnson is paid just above $10 an hour, even after a decade in her field. Wise and Johnson together rely on $240 a month in food stamps to feed their three kids, a cost borne by taxpayers.

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In fact, according to a study by Jacobs, Ian Perry, and Jenifer MacGillvary (pdf) for the UC Berkeley Labor Center, 52 percent of fast-food workers make so little that they’re are on some form of public assistance.*

That’s the social cost of McDonald’s (and other fast-food corporations’) private profits.

 

*Note also in the chart above the following observation about nominally non-profit higher education in the United States: “high reliance on public assistance programs among workers isn’t found only in service occupations. Fully one-quarter of part-time college faculty and their families are enrolled in at least one of the public assistance programs analyzed in this report.”

Absolutely!

Posted: 22 April 2016 in Uncategorized
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Everybody knows that Americans are increasingly overworked [ht: sm].

Half a century ago, overtime pay was the norm, with more than 60 percent of salaried employees qualifying. These are largely the sorts of office- and service-sector workers who never enjoyed the protection of union membership. But over the last 40 years the threshold has been allowed to steadily erode, so that only about 8 percent qualify today. If you feel as if you’re working longer hours for less money than your parents did, it’s probably because you are.

Today, if you’re salaried and earn more than $23,600 dollars a year, you don’t automatically qualify for overtime: That means every extra hour you work, you work free. . .

A 2014 Gallup poll found that salaried Americans now report working an average of 47 hours a week — not the supposedly standard 40 — while 18 percent report working more than 60 hours. And yet overtime pay has become such a rarity that many Americans don’t even realize that a majority of salaried workers were once eligible.

In a cruel twist, the longer and harder we work for the same wage, the fewer jobs there are for others, the higher unemployment goes and the more we weaken our own bargaining power. That helps explain why over the last 30 years, corporate profits have doubled from about 6 percent of gross domestic product to about 12 percent, while wages have fallen by almost exactly the same amount. The erosion of overtime and other labor protections is one of the main factors leading to worsening inequality.

This is also called absolute surplus-value.

April 5, 2016

Special mention

Tom Toles Editorial Cartoon - tt_c_c160405.tif 177576_600

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In the current century, just as at the beginning of the last one, the dominant discourse of the poor has been plainly wrong.

As Katha Pollitt asks (in her review of Matthew Desmond’s Evicted: Poverty and Profit in the American City), 

What if the problem isn’t that poor people have bad morals – that they’re lazy and impulsive and irresponsible and have no family values – or that they lack the skills and smarts to fit in with our shiny 21st-century economy? What if the problem is that poverty is profitable?

As it turns out, there is a lot of money to be made from “a dilapidated trailer park or a black neighbourhood of ‘sagging duplexes, fading murals, 24-hour daycares’.”

Tobin Charney makes $400,000 a year out of his 131 trailers, some of which are little better than hovels. Sherrena Tarver, a former schoolteacher who is one of the only black female landlords in the city, makes enough in rents on her numerous properties – some presentable, others squalid – to holiday in Jamaica and attend conferences on real estate.

And, in turn, poor people are held back from the rent they’re forced to have the freedom to pay.

The main condition holding them back, Desmond argues, is rent. The standard measure is that your rent should be no more than 30% of your income, but for poor people it can be 70% or more. After he paid Sherrena his $550 rent out of his welfare cheque, Lamar had only $2.19 a day for the month. When he is forced to repay a welfare cheque he has been sent in error and falls behind on rent, he sells his food stamps for half their face value and volunteers to paint an upstairs apartment, but it is not enough. People such as Lamar live in chronic debt to their landlord, who can therefore oust them easily whenever it is convenient – if they demand repairs, for example, like Doreen, or if a better tenant comes along. Sherrena liked renting to the clients of a for-profit agency that handles – for a fee – the finances of people on disability payments who can’t manage on their own. Money from government programmes intended to help the poor – welfare, disability benefits, the earned-income tax credit – go straight into the landlord’s pocket and, ironically, fuel rising housing costs. Public housing and housing vouchers are scarce. Three in four who qualify for housing assistance get nothing.

There continues to be an enormous amount of poverty in this rich nation—and the system is maintained both because there’s profit to be made by slumlords and because evictions serve to destroy the lives of the poor and the communities they live in.

Politics 0333

Capitalism is an economic system in which most people receive a wage or salary working in corporations for a small number of people who run those corporations and appropriate the resulting surplus in the form of profits.

That’s not a definition you’ll find in mainstream economics textbooks or most political debates these days. But it does capture what is distinctive about capitalism compared to other economic systems.

In particular, it focuses our attention on the tension between profits and workers’ compensation, and therefore on the relationship between capital and wage-labor.

And, it’s clear, capital is winning.

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They dipped in 2105 but, over the long haul (especially since the mid-1980s), corporate profits in the United States have continued to climb to record levels.

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And, as a share of national income, corporate profits have more than doubled—from about 7 percent in 1986 to 14.7 percent in 2015. Capital’s share of the economic pie has clearly been growing.

In other words, capital has been gaining during the current recovery and, with some short-term downturns, it’s been gaining for decades. (As an aside, when capital is not gaining, when the profit share does fall, as it has done periodically over the course of capitalism’s history, we get recessions and depressions—which persist until the conditions for corporate profitability are restored.)

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Capital has been gaining—and workers have been losing. Labor’s share of the economic pie has been declining for decades, falling from about 59 percent in 1970 to just under 50 percent in 2014.

The fact that capital is winning actually has some commentators worried. Larry Summers is concerned that high corporate profitability is incompatible with his secular stagnation thesis. The best he can do, though, is focus on “increased monopoly power” to account for the divergence between the profit rate and the behavior of real interest rates and investment.

Justin Fox, in contrast, is looking in the right direction:

Starting in the early 1990s, then, employees lost ground to corporations and, to a lesser extent, sole proprietors and landlords. In other words, capital gained at labor’s expense. In the high-growth 1990s one could argue that this was still a good deal, because everybody was making more money. After 2000, though, slow economic growth and a declining share of that growth going to workers combined to put much of the country in a long funk. . .

Faster economic growth would make this question less pressing — as in the 1990s, a growing pie would make the relative size of one’s slice less important. But if continued slowish growth is what the future has in store for us, and lots of economists think it is, it seems clear that it would be better for the country — if not necessarily its investors — for corporations and other capitalists to ease up and let employees have more of the pie. It’s less clear that the capitalists would do this voluntarily.

Capital has indeed gained at labor’s expense. But, within capitalism, there are simply no mechanisms that can resolve the tension between profits and wages.

The fact is, the conflict between capital and wage-labor can only be eliminated by moving beyond capitalism.

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Yes, American workers are angry. But not just for one reason—for many reasons.

It took a long time for U.S. political and economic elites (and their friends in economics) to understand that the American working-class has been squeezed far beyond what it can take. Even now, it’s not clear they understand, although the campaigns of Donald Trump and Bernie Sanders have given clear indications that the establishment is out of touch.

Even then, the anxieties and frustrations of U.S. workers can’t be put down to one thing.

MM and SK on Voter Anger - Manufacturing Employment Decline.xlsx

Sure, as Mark Muro and Siddharth Kulkarni explain, the American working-class is angry about the loss of manufacturing jobs.

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But let’s also remember that the share of manufacturing jobs in the United States has been on a steady decline since its peak of 39 percent in 1943.

Still, the drop in the number of U.S. manufacturing jobs accelerated in the new millennium, coinciding with a rise in the offshoring of jobs to and the rise of imports from Mexico, China, and other countries in the process of capitalist development. That’s certainly one key factor.*

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But American workers are angry for other reasons—such as the fact that, as Jared Bernstein explains, their wages, which had doubled from the 1940s to the 1970s, have flat-lined since.

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Even more: only wages at the top—above the 90th and 95th percentiles (which, as I have explained before, aren’t really like other wages but, instead, represent cuts of the surplus)—have seen any appreciable increase since the start of the Second Great Depression.

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Meanwhile, even with slow growth, corporate profits (both financial and nonfinancial) continue to rise to record levels.

Thus, workers are falling further and further behind, while the tiny group at the top continues to pull away from everyone else.

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What this means is that every indicator we have—such as average incomes and the share of income captured by the top 1 percent—shows grotesque and growing levels of inequality within the United States.

So, yes, American workers are angry—at the loss of jobs, their stagnant wages, their employers’ record profits, and the obscene and still-increasing levels of inequality they witness every day.

 

*Daron Acemoglu et al. (pdf) estimate that, considering both the direct and indirect effects, import growth from China between 1999 and 2011 led to an employment reduction of 2.4 million workers—and thus about 40 percent of the decline in manufacturing employment during that period.