Tag Archives: economics: great recession

U.S. Corporations are Hoarding Wealth at Highest Rate Since 1971

The dominant firms in the U.S. and other major capitalist counties are happily making profits, but they aren’t interested in investing them in new plants and equipment that increase productivity and create jobs.  Rather they prefer to use their earnings to acquire other firms, reward their managers and shareholders, or increase their holdings of cash and other financial assets.

The chart below, taken from a Michael Burke post in the Irish Left Review, shows trends in both U.S profits and investment .

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As you can see the increase in profits (in orange) has swamped the increase in investment (in blue) over the relevant time period; in fact, investment in current dollars has actually been falling.

Looking at the ratio between these two variables helps us see even more clearly the growth in firm reluctance to channel profits into investment.  The investment ratio (investment/profits) was 62% in 1971, peaked at 69% in 1979, fell to 61% in 2000 and 56% in 2008, and dropped to an even lower 46% in 2012.

According to Burke,  if U.S. firms were simply to invest at the level they did in 1979, not even the peak, the increase in investment in the American economy would exceed $1.5 trillion, close to 10% of GDP.

The same dynamic is observable in the other main capitalist economies:

In 1995 the investment ratio in the Euro Area was 51.7% and by 2008 it was 53.2%. It fell to 47.1% in 2012. In Britain the investment ratio peaked at 76% in 1975 but by 2008 had fallen to 53%. In 2012 it was just 42.9% (OECD data).

So what are firms doing with their money? As Burke explains:

The uninvested portion of firms’ surplus essentially has only two destinations, either as a return to the holders of capital (both bondholders and shareholders), or is hoarded in the form of financial assets. In the case of the U.S. and other leading capitalist economies both phenomena have been observed. The nominal returns to capital have risen (even while the investment ratio has fallen) and financial assets including cash balances have also risen.

So, with firms seeing no privately profitable outlet for their funds, despite great societal needs, their owners appear content to reward themselves and sock away the rest in the financial system.  In many ways this turns out to be a self-reinforcing dynamic.  No wonder things are so bad for so many.

Cross-posted at Reports from the Economic Front.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

The Striking Rise in “Missing Workers”

The Federal Reserve Bank has said it will maintain its stimulus policy as long as the economy remains weak. One of its key indicators for the strength of the economy is the unemployment rate, which has been steadily falling for several years, from 10% in October 2009 to 7.3% in August 2013.  However, this decline in the official unemployment rate gives a misleading picture of economic conditions, at least as far as the labor market is concerned.

The reason, as the Economy Policy Institute explains, is because of the large number of “missing workers.”  These missing workers are…

…potential workers who, because of weak job opportunities, are neither employed nor actively seeking a job. In other words, these are people who would be either working or looking for work if job opportunities were significantly stronger. Because jobless workers are only counted as unemployed if they are actively seeking work, these “missing workers” are not reflected in the unemployment rate.

We are seeing many more missing workers now than in recent history.  The chart below shows the Economic Policy Institute estimate for the number of missing workers.

missing workers_Page_1

 The next chart compares the estimated unemployment rate including missing workers (in orange) with the official unemployment rate (in blue).

unemployment rates_Page_1

As you can see, while the official unemployment rate continues to decline, the corrected unemployment rate remains stuck at a rate above 10%. In other words labor market conditions remain dismal. And here we are only talking about employment.  If we consider the quality of the jobs being created, things are even worse.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Welcome to an Economy for the 1%

The great majority of Americans might find the post-recession expansion disappointing, but not the top earners.

The following table reveals that our economic system is operating much differently than in the recent past.  The rightmost column shows that the top 1% captured 68% of all the new income generated over the period 1993 to 2012, but a full 95% of all the real income growth during the 2009-2012 recovery from the Great Recession.  In contrast, the top 1% only captured 45% of the income growth during the Clinton expansion and 68% during the Bush expansion.

piketty_saez

Of that weren’t enough, the next chart offers another perspective on how well top income earners are doing. In the words of the New York Times article that included it:

…the top 10% of earners took more than half of the country’s total income in 2012, the highest level recorded since the government began collecting the relevant data a century ago… The top 1% took more than one-fifth of the income earned by Americans, one of the highest levels on record since 1913 when the government instituted an income tax.

We have a big economy.  Slow growth isn’t such a big deal if you are in the top 1% and 22.5% of the total national income is yours and you can capture 95% of any increase.  As for the rest of us…

One question rarely raised by those reporting on income trends: What policies are responsible for these trends?

Cross-posted at Reports from the Economic Front.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Unhappy Labor Day

As the Wall Street Journal reports:

Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.

In other words, as the chart below illustrates, the great majority of workers are experiencing real wage declines over this expansion”

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Growth also remains sluggish, increasing “at a seasonally adjusted annual pace of less than 2% for three straight quarters — below the pre-recession average of 3.5%.”  But by intensifying the pace of work and reducing the pay of their employees, corporations have been able to boost their profits despite the slow growth.

The following chart from an Economic Policy Institute study shows the continuing and growing disconnect between productivity and private sector worker compensation (which includes wages and benefits) using two different measures of compensation.

epi trends

As the Economic Policy Institute study explains, “there has been no sustained growth in average compensation since 2004. The stagnation began even earlier, in 2003, when considering wages alone. Since 2003, wages as measured by both the ECI and the ECEC (not shown) have not grown at all — a lost decade for wages.”

The point then is that we need a real jobs program, one that is designed to create new meaningful jobs and boost the well-being of those employed.  Government efforts to sustain the existing expansion have certainly been responsive to corporate interests.  It should now be obvious that such efforts offer workers very little.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Two American Families Trapped in a Changing Economy

In the early 1990s, Bill Moyers began following two Milwaukee families, the Neumanns and the Stanleys, as they struggled to keep a foothold in the middle class in the face of economic changes that largely destroyed the city’s decently-paid, unionized manufacturing jobs. An earlier documentary, Surviving the Good Times, showcased the two incredibly hard-working families’ efforts to adapt to the new economic reality. Their stories highlight the difficulty of trying to achieve the American Dream on a series of jobs that rarely pay a living wage or offer any benefits.

And how about now? Twenty years after he first started following their lives, Moyers returned to Milwaukee to see how they had fared during the housing bubble and subsequent economic crisis. Two American Families shows the increasing economic precariousness each family experiences over two decades and the impacts this has on the opportunities they can provide their children. It’s a heartbreaking look at the effects of large-scale economic changes on individual families.

Watch Two American Families on PBS. See more from FRONTLINE.

PBS has also posted interviews with a few of the family members about why they participated in the new film, as well as an update on how they’re doing since they were last filmed. And you can find a number of charts on the changing economy and its impacts on families here, and some data about Milwaukee specifically here.

Gwen Sharp is an associate professor of sociology at Nevada State College. You can follow her on Twitter at @gwensharpnv.

The Continuing Unsatisfactory Economic Expansion

Cross-posted at Reports from the Economic Front.

Media and policy-makers seem anxious to convince us that the economy is in strong recovery mode, therefore, no further significant policy interventions are needed.

Their optimism appears to rest heavily on the recent acceleration in consumer spending.  After all, there are strong reasons for concern with the other major sources of growth:  government spending on all levels is being cut, exports face a weakening world economy, and business investment remains largely stagnate.

But there are also strong reasons to challenge this optimistic view of consumer spending as a growth engine.  The charts below, from a Wall Street Journal article, highlight some of the most important.

As we see below, while consumption spending is indeed accelerating, after tax personal income is falling.  In other words, there appears little reason to believe that there is a solid foundation for sustaining this trend.

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Additionally, after four years of recovery we still have 2.4 million fewer jobs than we had at the start of the recession.  Moreover, as we see below, there has been no real wage growth.  In fact, real average wages have fallen for most of the so-called expansionary period.

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Yes, housing values are finally starting to rise and household debt payments as a share of after-tax income are declining.  But to a large extent the new burst in consumption spending has more to do with renewed borrowing than solid gains in job creation and income.

Unfortunately, there is little reason for us to have confidence that the economy is gathering strength in ways that will be sustainable or benefit the great majority of working people.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.

Are Markets a Good Measure of Economic Recovery?

Last week many media outlets were busy celebrating the Dow Jones record high, suggesting that it was indicative of the United States’ recovery from the greatest economic downturn since The Great Depression.  The graph below comes from a New York Times story with the headline “As Fears Recede, Dow Industrial Hits a Milestone.”

However, another story buried in the Business section of the New York Times, titled “Recovery in U.S. Is Lifting Profits, but Not Adding Jobs,” contains a graph illustrating how the supposed economic recovery is bitter-sweet at best:

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The second graph uses data from the Bureau of Economic Analysis to highlight the fact that corporate profits and stock prices are at record highs, but the share of profits workers have taken home has steadily dropped since the early 1980s.  Some of the steepest declines have come during the last few years, or during the supposed “recovery.”

These two graphs illustrate that while ”The Market” is probably considered the go-to indicator of economic well-being, stock indexes are not always indicative of the economic reality experienced by non-investors.  If businesses and corporations were increasing their stock value by investing to expand productivity, thereby creating good-paying jobs and opportunities for workers, rising markets would be a sign good of economic times for all.  But this data suggests that is not what is happening; instead, as the twin charts show, rising corporate profits are at least partly the result of wage suppression.

Jason Eastman is an Assistant Professor of Sociology at Coastal Carolina University who researches how culture and identity influence social inequalities.

Austerity Produces… Austerity

Cross-posted at Reports from the Economic Front.

The British economy is a disaster.  Oddly enough most analysts find it difficult to explain why.

Actually the reason is quite simple. The British government responded to its own Great Recession by cutting spending and raising taxes.  The result, which is anything but mysterious, is that the county remains in deep recession.

Matthew O’Brien, writing in The Atlantic, describes the situation as follows:

…public net investment — things like roads and bridges and schools,  and everything else the economy needs to grow — has fallen by half the past three years, and is set to fall even further the next two. It’s the economic equivalent of shooting yourself in both feet, just in case shooting yourself in one doesn’t completely cripple you. Austerity has driven down Britain’s borrowing costs even further, but that’s been due to investors losing faith in its recovery, rather than having more faith in its public finances. Indeed, weak growth has kept deficits from coming down all that much, despite the higher taxes and slower spending. In other words, it’s economic pain for no fiscal gain.

Below is a chart taken from The Atlantic article.  It shows that:

Britain’s stagnating economy has left it in worse shape at this point of its recovery than it was during the Great Depression. GDP is still more than 3 percent below its 2008 peak, and it hasn’t done anything to catchup in years. At this pace, there will be no recovery in our time, or any other time.

 gdp to december 2012

In other words, while the British economy suffered a deeper decline during the Great Depression period of 1930 to 1934 than to this point in the Great Recession which started in 2008, the economy recovered far more quickly then than now.  In fact, it doesn’t seem to be recovering now at all.

Perhaps the most surprising thing about the situation is that political leaders appear determined to stay the course.

Martin Hart-Landsberg is a professor of economics at Lewis and Clark College. You can follow him at Reports from the Economic Front.