Whatâs
Wrong Today:
Yesterday,
CNN reported that four years after the worst
economy since the Great Depression, US corporate profits are stronger than ever:
In
the third quarter, corporate earnings were $1.75 trillion, up 18.6% from a year
ago, according to last week’s Gross Domestic Product report. That took after-tax profits
to their greatest percentage of GDP in history. But the record profits come at the same time
that workers’ wages have fallen to their lowest-ever
share of GDP.
After-tax
profits accounted for 11.1% of GDP last quarter, compared with an average of 8%
during the previous economic expansion. They fell as low as 4.6% of GDP during
the recession.
Another
government report shows that total wages as a percent of GDP are at an all time
low of 43.5% of GDP. Until 1975, wages usually accounted for at least 50% of
GDP, and had been as high as 49% as recently as early 2001. This is both cause
and effect. One reason companies are more profitable is that they’re paying
employees less than they ever have as a share of GDP. And that, in turn, is one
reason the economy is so weak: Those “wages” are other companies’
revenue.
In short,
our current tax structure and governing philosophy is creating a country of a few million
overlords and 300+ million serfs. Below, Wages/GDP (%):
As is evident in the above graph, overall economic growth has greatly outpaced growth in hourly wages and job creation since the end of
Great Recession, so workers’ share of the economic pie has dropped steadily.
So,
Whatâs Wrong?
This is just
more evidence of the conundrum that the Wrongologist has reported on recently, here, talking about
high corporate profits and poor job growth and here, talking about
high corporate profits and no growth in median income since 1999.
Josh
Barros wrote last Thursday in Bloomberg’s Ticker:
Liberals talk about
booming incomes at the top while lower-income households barely see benefits
from economic growth. Conservatives talk about a rising share of the population
that depends on government benefits and a shrinking share that pays income tax.
Though the frames
are different, these are descriptions of the same economic phenomenon: rising
inequality of pre-tax incomes. But only liberals are advancing a semblance of
an agenda to address it.
Republicans
want us to believe that lower taxes will promote higher median income for
Americans.
The main
problem with this position is the lack of evidence to support it: Lower taxes
and a smaller government probably wouldnât increase GDP growth. Moreover, there’s
no reason to assume that if it did, any growth would accrue in a more equal
manner than we have experienced in the past 13 years.
The effect of Boehner/Ryan-style fiscal policy, which makes taxes both lower and
less progressive while shrinking employee benefits, would be a rise in after-tax inequality.
Conservativesâ
ideas are not good for the middle class or the working poor. Since the 1970s, wage gains have been decoupled
from productivity gains and the average American family has received a
disproportionately small share of the benefits of that economic growth.
And conservatives
have nothing to say about how to fix this problem.
One
conservative message about income inequality is to say that it doesn’t matter,
that we should accept rises in both pre-tax and post-tax inequality. This is
the implication of studies periodically put out by the Heritage Foundation, arguing that the poor aren’t really poor
if they have microwave ovens.
This
isn’t an appealing or winning argument. The problem with rising inequality is
not that lower-income families can’t afford cheap electronics; it’s that they can’t keep pace with the
rising costs of health care and education.
There’s
also no reason to think that whatever standard of living we start from, an
economy where nearly all the upside accrues to a small fraction of families is either politically sustainable or morally
acceptable.
If
Republicans joined Democrats in the cause of containing costs in health care,
the effect would be to raise real
incomes for the middle class. The rising cost of health care benefits
has been a key driver of middle-class wage stagnation. Unfortunately, Republicans
have no real interest in controlling health care costs: It requires going
against the economic interests of a large portion of their base.
Obviously, Republicans are not interested in doing that. Instead of
trying to make Obamacare less costly, they fought as hard as they could to stop
it. If you think Republicanâs objections are just because they are deficit
hawks who want to curb government spending, rather than wanting to curb government
spending specifically directed at poor people, note how they are now proposing to protect Medicare: By making it harder for poor people to afford it!
Republicans remain one-trick ponies
for the 1%.
Excellent summary – especially enjoy that you incorporated the conservative story that the poor can’t be poor, they have microwaves (or expensive sneakers).