During this country’s recent economic “recovery,” real corporate profits increased by four times the amount of working wages in dollar terms, and, as the chart below shows, are 50% higher than at the turn of the century while wages remain relatively unchanged, something that has not occurred since this country’s nuptials were concluded over three centuries ago. Is it any wonder that preliminary battlefield skirmishes in Wisconsin and Ohio between labor and capital promise to spread across every state of this land? (Not Texas!) Is it any wonder that Republican orthodoxies favoring tax cuts for the rich and Democratic orthodoxies promoting entitlements for the poor threaten to hamstring any constructive efforts to reduce unemployment over the foreseeable future?
[See comments, where it is suggested Gross might be wrong on the facts.]
Prof. M. J. Perry over at Carpe Diem [http://mjperry.blogspot.com/] has an interesting plot that shows consumer spending has more or less recovered from the slump but private investment remains at the bottom. He suggests that the continuation of the recession (at least in employment) is due to lack of private investment.
ReplyDeleteAnd, of course, there are the very large uncertainties regarding tax liabilities and medical insurance costs. These cannot be resolved until we have a new President and Congress in place, and if Obama and the Democrats remain in control, they will not be resolved.
Gross is good fun, but the data don't really say that. Labor's share of GDP has been flat for 80 years or more at about two-thirds. It's cyclical, so you see some ups and downs, and fringe (think health insurance) has gone up relative to wages and salaries, but there's no trend to speak of. The corporate profits number is much smaller (pretax less than a fifth of labor compensation) and there's reason to believe (this is speculation now) that the recent past has been anomalous: a good guess is that the mid-decade peak is overstated (those weren't really profits). Ditto the subsequent trough and peak, as firms booked losses that they later undid and claimed as profits.
ReplyDeleteSo... there may be an issue, but it's not clear this is it. Income distribution maybe?
Data: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=52&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1929&LastYear=2010&3Place=N&Update=Update&JavaBox=no#Mid
Exactly right on the the facts. If you'd like to see some related figs, check out my NYU colleague Tom Cooley's blog with Peter Rupert, they give you a clear picture of what's different about the current recovery:
ReplyDeletehttp://econsnapshot.wordpress.com/2011/09/08/snapshot/
When I was putting the post up, I was hoping you (specifically) might chime in to tell us whether Gross is correct on the facts!
ReplyDeleteBillionaires don't mind hugher taxes but much less well informed eggheads think they would be the end of the world. Does Dave own a gun and go to church? Probably.
ReplyDeleteExecutive compensation must not be included. They work for no one but themselves, and they work as a class, because much higher salaries for non-founding chief executives would destroy class morale.
ReplyDeleteThat seems like an absolutely crucial point to me, and I strongly suspect that the "salary" figure does indeed include those of executives.
ReplyDeleteNow I don't pay a great deal of attention to this, but in the last year or two, weren't there quite a number of hedge-fund execs whose individual compensation ran well over a billion dollars per year? Presumably the resulting non-decline in mean American salaries should prove that American Labor is getting its fair share and thereby raise the spirits of the working class.
The whole thing is a little like the old joke about Bill Gates giving a talk to a bunch of college students, miraculously raising the "average" net worth of everyone in the room to $50M or so.
I met Gross briefly a few years ago when I gave a talk at PIMCO. No giddiness, but I did invest some money in PIMCO funds which haven't exactly outperformed since :-(
ReplyDeleteTotal executive comp or total wages if different at large public companies may be a small % of total comp. Even so the great free market has yet to align shareholder and executive interests, and NaBisCo's the max for the LBO threat.
ReplyDeleteThese execs form a class which has replaced the 19th century's owner-operator. They treat their companies like personal piggy banks.
The large public company IS market failure.
"Labor's share of GDP has been flat for 80 years or more at about two-thirds. "
ReplyDeleteSee no contradiction if GDP was growing at a slightly higher than inflation rate.
This is probably another case (relatively common in the field of human demographics) where the median is a better measure than the mean -- for capturing the concept we are interested in here.
ReplyDeleteI didn't see any mention of U.S. defense spending in this outlook? Maybe I missed it? Defense spending seems to be the affair in the U.S. marriage. Maybe the stirred emotions keeps them together but the lasting repercussions are ultimately more damaging.
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