Posts Tagged ‘profits’

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We’re all done singing to “days gone by” (even though no one really knows the lyrics). But, unless we change our tune and resolve to fundamentally alter the way the economy is organized, we’re going to have to face up to the problem that’s been haunting the United States for decades now: growing inequality.

And it’s only getting worse.

Part of the problem stems from the increase in market concentration in the United States. According to a recent research paper by Joshua Gans et al., the rise in mark-ups by large U.S. corporations is a two-edged sword: it increases the prices consumers pay but, at the same time, rewards shareholders. The problem is, the ownership of corporate stocks is more unequal than consumption—and it’s been getting more unequal in recent decades. Thus, the majority of Americans are forced to pay higher prices for the goods they consume but they don’t own much in the way of corporate equity—and the distribution of income, which was already obscenely unequal, is made even worse.

expnditure

For example, the distribution of consumption expenditures is profoundly unequal but has remained relatively stable over time: the 20 percent of families with the lowest incomes accounted for 9 percent of all expenditure in 1989, the same figure as in 2016. The 20 percent of families with the highest incomes comprised 38 percent of all expenditure in 1989, rising to 39 percent in 2016.

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Meanwhile, the ownership of corporate equity, which was grotesquely unequal in 1989, has become even more unequal over time. The lowest-income fifth of families had 1.1 percent of corporate equity in 1989, and still only 2.0 percent in 2016. By contrast, the highest-income quintile had 77 percent of corporate equity in 1989, and even more—89 percent—in 2016. In other words, corporate equity is about 13 times as concentrated as expenditure.*

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The authors estimate that the rise in market power in the United States has lowered the bottom 60 percent income share (from 21 to 19 percent) and raised the income share of the top 20 percent (from 61 to 64 percent).*

The other, more recent cause of growing inequality is of course the 2017 Republican tax cut, which has allowed large corporations to reshuffle their books, reduce their federal tax obligations and use their higher retained earnings to increase stock buybacks and the dividends they pay to already-wealthy individuals (who, in turn, have been able to use their higher post-tax incomes to purchase more shares in U.S. corporations).

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As is clear in the chart above, corporate taxes—in both absolute terms (the red line, measured on the left) and as a share of federal tax receipts (the blue line, on the right)—have declined precipitously since the tax cuts were enacted.

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Meanwhile, as readers can see in the chart above, the dividends corporations are paying out to the richest Americans (as well as foreign stock owners) continue to hit record highs—thus adding fuel to the fire of rising inequality in the United States.

Both increased corporate concentration and last year’s tax cut have widened the gap between the haves and have-nots in the United States. That much is clear. But Americans have to face up to a much more fundamental problem, both in days gone by and now, which neither antitrust measures nor repealing the tax cut will fix.

The fact is, the surplus created by American workers is appropriated and distributed not by them, but by the boards of directors of the corporations where they are employed. Those who do most of the work have no say in what is done with the surplus they create—nor do they receive the proceeds, either in the form of increased pay (which has barely budged in recent decades) or stock dividends (which have soared).

Unless Americans resolve to tackle that problem, the economic “seas between us braid” will continue to roar.

 

*But the authors also make clear that rising concentration is only part of the problem: “The rise in income inequality over the period that we study has been considerable, and even in the absence of market power, incomes would be more concentrated in 2016 than they were in 1989.”

**According to my own calculations, in 2014, the top 1 percent owned almost two thirds of the financial or business wealth, while the bottom 90 percent had only six percent. That represents an enormous change from the already-unequal situation in 1978, when the shares were much closer: 28.6 percent for the top 1 percent and 23.2 percent for the bottom 90 percent.

The historically low black unemployment rate is one of Donald Trump’s favorite applause lines. Even Reuters [ht: ja] declares that Trump is right.

It doesn’t seem to matter that most of the decline in the unemployment rate for African American workers (from a high of 16.5 percent in the beginning of 2010 to a low of 6.3 percent today) occurred before Trump was ever elected.

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What does matter is that, even as the rate has dropped (the purple line in the chart above), black workers’ pay (the green line) has barely changed. After falling precipitously (by 10 percent, from the end of 2009 to the middle of 2015), it has only increased slightly (by 3.8 percent). Overall, the real wages of black workers have actually declined (by 6.5 percent, between the end of 2009 to today).

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White workers have suffered much the same fate. While the unemployment rate (the red line in the chart above) has declined dramatically (from a high of 9.1 percent at the end of 2009 to 3.4 percent today), white workers’ real wages (the blue line) have been stagnant—rising by only 1.4 percent (from the beginning of 2009 to today).

Today, black workers are earning $19 less per week (compared to their peak at the end of 2009), while white workers take home only $5 more per week (from their peak in the beginning of 2009)—even though the unemployment rate for both groups of workers has reached historically low levels.

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Meanwhile, the real beneficiaries of the current recovery—under both Trump and his predecessor—have been the employers of those workers, black as well as white. U.S. corporate profits continue to reach new historical records (soaring 172 percent from their low at the end of 2008, and 35.8 percent overall since the end of 2006).

American corporations are only too happy to hire workers, regardless of race or ethnicity, as long as their profits grow.*

That’s how the U.S. economy works today: the unemployment rates fall to record lows but workers’ pay barely budges. And an increasing portion of the value workers create fills corporate coffers.

In the end, that’s Trump’s real gift—to use everything in his power to direct attention away from the fact that all workers are being left behind.

 

*And when corporations decide they can’t make enough profits by hiring American workers, they lay them off and relocate production elsewhere. That’s what General Motors just did, eliminating 15 percent of its salaried workforce—destroying some 14,000 jobs—and halting production at five of its North American auto plants. As Christopher Ingraham explains,

That combination of unemployed workers and happy investors underscores a key point about the modern American economy: What’s good for corporate profits isn’t necessarily good for workers.

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Those aren’t my words. The quotation that forms the title of this post is from a recent Federal Reserve Bank of St. Louis blog post.

And they’re important to keep in mind in light of the news coverage (e.g., by the New York Times) of last week’s Labor Department report on hiring and unemployment. Yes, 250 thousand jobs were added in the U.S. economy last month and average earnings did rise by 0.2 percent and are up 3.1 percent over the past year.

But. . .

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The rate of growth of American workers’ wages (the blue line in the chart above) is only a hair above the increase in consumer prices (the red line). So, for all intents and purposes, real wages remain stagnant.

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Meanwhile, the profits captured by American corporations continue to grow, reaching new record highs.

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It should come as no surprise, then, that the labor share of national income (the light blue line in the chart above) remains below its pre-crash level (and much lower than any earlier year in postwar history), while the share of national income that is distributed to wealthy households in the form of dividends (the light green line) is still much higher than it’s been throughout the postwar period.

Never have corporate profits and dividends outgrown workers’ wages so clearly and for so long. And the political party dominating all three branches of the U.S. government is doing everything in its power to make sure that trend continues.

That’s the proper context for the latest jobs report—and for tomorrow’s elections across America.

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