Record Profits
Let’s all note today’s news about corporate profits: they hit an all time record by reaching an annual rate of $1.659 trillion. Clearly business is not hurting.
This record setting pace comes in large part from the increase in productivity businesses have wrung from their operations. They have learned over the past two years to manage with far fewer workers. They have shipped operations abroad to lower costs. And they have expanded their market share in emerging markets where growth is strong at the moment. From the perspective of shareholders this is a great time.
Workers not so much.
This simply repeats a pattern we have seen for a decade or more now. The only element of the economy that performed well during the Bush regime was corporate profit. Everything else, especially anything to do with worker compensation, fell steadily behind historic trends.
Even so the huge piles of cash being accumulated by our large companies is extraordinary. That they see no reason or need to invest in the American economy is attributable to its sluggish growth and the fact that they can still squeeze workers some more.
This does not portend well: sooner or later, as Keynesians point out, the diversion of the national wealth into profits results in such an imbalance that the economy is thrown into reverse. There are any number of Keynesian models of the economy – Kaldor’s for instance – that point to a decline if the balance between worker wages and profits is not restored.
One last thought: the so-called “Golden Era” of the 1950’s was built entirely upon such a balance. Profits were kept in check; income inequality shrank; CEO pay was limited to sensible ranges; unions produced high blue collar wages; and the economy grew strongly. Republicans argued for increased health care coverage and bemoaned defense spending.
How long ago that all seems.
Where did it go wrong?
One word: Reagan.
Corporate profits have now grown for seven – count them – straight quarters. Some of those quarters, like this last one, have set all time records for growth. Business is the one part of the economy flourishing under Obama. So big business must love him.
No?
