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Profit on Wall Street, Recession on Main Street
In America's deeply dysfunctional economy, unemployment is stuck at a 'new normal' of 9%, while corporate profits race ahead
In the past few weeks alone, Bank of America, Goldman Sachs, Cisco Systems and Borders have all announced massive layoffs. Borders is closing its retail stores, auctioning off its holdings and letting go 10,000 employees as, due to online competition, the company is no longer profitable and filed for bankruptcy earlier this year. In contrast, Bank of America, Goldman Sachs and Cisco Systems have all posted profits in the last few quarters – in some cases, record highs. Alhough according to the latest data, 9.1% of Americans are unemployed, major US corporations are slashing jobs not out of necessity but out of greed. The revived focus in Washington on creating jobs may be pointless if corporate America no longer needs workers. 
The revived focus in Washington on creating jobs may be pointless if corporate America no longer needs workers. (photo: chantal foster)
A new report by Northeastern University's centre for labour market studies shows (pdf) that corporate downsizing, work hour reductions and the correlated growth of corporate profits directly led to the recession. Big business in America shed jobs and squeezed increased productivity from their remaining workers, but report authors Andrew Sum and Joseph McLachlan write: "None of these productivity gains was shared by wage and salary workers in the form of higher real weekly earnings." Instead, corporations increased their profits "at a higher relative rate than in any other post second world war recession."
Following the recession of the 1980s, 28% of the economic growth in recovery went to corporate profits, while 25% went to boost the wages and salaries of ordinary workers. Today, 88% of the economic recovery has gone to boosting corporate profits. As a widely cited earlier version of Sum and McLachlan's report finds (pdf), only 1% – that's one out of every $100 – has gone to wages and salaries for the folks who clearly need it most.
In the raw capitalist model, some percentage of people need to be unemployed – a point Karl Marx sharply critiqued and, later, John Maynard Keynes used to justify government's role promoting full employment. While any level of unemployment seems untenable to average Americans trying to pay their bills, economist-types have long accepted that, left to its own devices, the unemployment rate will never be zero. Ongoing 5% unemployment is considered the norm, though in February, the Federal Reserve Bank of San Francisco released a paper arguing that 6% unemployment might be the new baseline. But what if it's worse? What if we've reached a new low in unchecked capitalist greed that will perpetually drive up the unemployment rate as long as companies can keep extracting a profit?
The financial sector occupies an increasing share of America's economy. Between 1973 and 1985, the financial sector comprised 16% of domestic corporate profits. In the 1990s, it hit 30%. In the past decade, the financial industry's slice of the economy topped 41% – and t may even go higher. These businesses make money not by making things, but by making bets on other money. Employees sold separately.
Increasingly, financialisation is sweeping more traditional businesses. General Electric, which has laid off thousands of workers in the past several years, posted profit growth in the last quarter driven not by refrigerators or even missiles, but by the company's financial services arm. Even Cisco Systems, which will lay off upwards of 6,000 people this year, targets financial industry customers to buy its routers and computer networks.
Of course, companies have always played a sort of shell game with workers and revenues. The difference now may be that major players can generate profits just by playing the game, regardless of the outcome. A few blocks from where I live in Brooklyn, NY, the Maramont food manufacturing company with 150 decently paid union workers is moving operations to non-unionised Pennsylvania. The modern twist on this unfortunate but old story is that Goldman Sachs owns the small company – and if they don't make money off this scheme, they'll move the company to Bangladesh, or even get rid of workers altogether, or perhaps short their own holding and make money betting against Maramont. It's all the same to Goldman, as long as they make a buck. The workers, rather than essential parts of a productive economic engine, are now just pawns in high finance's game.
Most Americans are not Marxists. We want capitalism to work, generating earnings and opportunities – not just for Wall Street titans, but for ordinary working people. That, after all, is the essence of the American story. Yet, today's corrupt brand of capitalism would confound even Marx, who in his critique of the market's reliance on unemployment wrote, "[C]apital only increases when it employs workers." If extreme profit-making at the expense of ordinary workers continues to go unchallenged, Marx's criticism may seem more like nostalgia. If we do nothing to confront corporate greed, we will not create new jobs in America.
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25 Comments so far
Show AllDo you think it could happen in the US?
"France introduces new tax on high incomes"
http://www.bbc.co.uk/news/business-14656486
Taxes on the wealthy and corporations will continue to be reduced as long as Democrats and Republicans occupy the White House and most of Congress.
Until we elect people that are not owned by the corporations, US taxation will continue to become more regressive.
I respectfully disagree. The problem is Corporate Personhood, not the D/R uniparty. So long as Corporations are given the rights of We the People (i.e., The Bill of Rights), they will be allowed to buy whatever "party" they wish.
We CANNOT "elect people that are not owned by the corporations." It's too late. Corporations are allowed to spend unlimited sums, even anonymously, to lobby, to buy elections, to corrupt anyone they wish, and to spin whatever works on their completely-controlled media. Money.
The only way a 3rd party could win would be with Matt Damon or someone having his credibility at the top of the ticket. Even then, the PTB would just assasinate Matt & demonize/marginalize the revolution.
The ONLY solution shy of Permanent Large Scale Nonviolent Civil Disobedience in the streets, is a Constitutional Amendment (e.g., "A Corporation is not a Person . . . ."). The Amendment requires working within the broken system, so it's unlikely to happen.
The revolution in the streets needs to be nonviolent, but inertia is a funny thing. Presently, We the People are like frogs in a pot of water on the stove. By the time we realize it's boiling, it will be too late.
Proposed Constitutional Amendment:
1. The treatment in law of the corporation as a person for whatever purpose shall not be construed to include natural or constitutional human rights as enjoyed by actual people.
2. The only constitutional right attaching to the corporation shall be the right to due process of law and no other. No corporation shall enjoy any natural human rights whatever.
3. Except for the right to due process of law, the rights and protections enumerated in the first ten amendments to this Constitution, and known as the Bill of Rights, shall not extend to corporations.
4. The lobbying of the government for any reason whatever is an exercise of The right to petition the government for redress of grievances, is reserved to actual people, and is denied to corporations.
5. Any statutory grant in any form shall be construed as privilege, shall be the object of regulation, subject to taxation.
6. Corporations are permanently enjoined from political activity of any kind in any form or amount, including the donation of any funds to any political campaign, all such activities being exclusively the purview and prerogative of actual people.
7. The receiving of any benefit or emolument of any kind in any amount whatever, directly or indirectly, from any corporation by any elected or appointed official during that official's term of office or campaign for office shall constitute a recallable or impeachable offense and shall disqualify that individual from holding puclic office under the United States.
8. Congress shall enact appropriate legislation to carry out the spirit and the letter of this amendment.
When the people decide, their incomes go up dramatically.
Direct democracy
The "9% uemployment rate" to which the author refers is based on the criteria the US Gov. CURRENTLY uses to caculate the unemployment rate.
Gov. methodology for creating such indexes has been continuously skewed for the past thirty years in the direction of understating the unemployment rate in order to diminish the number of people eligible for assistance and the amount each "eligible recipient" gets.
If you apply pre-1980 methodology you would get 16 to 18% unemployment. If you apply pre-1940 methodology the rate would be closer to 30%.
I think most working people would be satisfied if their wages kept up with the cost of living. Suppose all future raises for everone, CEO's included came in the For Cost of living Adjustments. I don't think it would be the least bit unfair if demanded the CEO's Salaries be Limited 40 times, the yearly wages earned by the lowest Paid worker. If The CEO get a raise everyone who works for him or her gets a Raise.
Just as the US gov's. formula for calculating the rate of unemployment keeps getting skewed in the direction of understating the true rate, the formula for calculating the consumer price index and rate of inflation has been likewise skewed ever since Republican Gerald Ford and democrat Jimmy Carter lost their respective elections more than 30 years ago, at least in part due to their being blamed for high inflation.
Not only does the understated CPI and rate of inflation keep wages and retiree benefits in a downward spiral, they also enable bubbles and speculation that spikes the cost of food and energy when combined with the deregulated financial environment we have seen for the past thirty years.
Excellent points on both the manipulation of unemployment statistics and the chicanery around the 'consumer price index'.
Even in conversations with relatively progressive people, it is necessary to constantly explain that the unemployment rate is vastly worse than the 9.1 % cited by corporate media. And most people have never even heard of the CPI or realize the extent that the system is 'gamed' to rob them blind for the benefit of the rich.
Allan Greenspan, tellingly, has his giant 'Ayn Randian' thumbprints all over the CPI trickery.
Please excuse the following long but revealing quote:
"Although the ensuing political furor killed consideration of Congressionally mandated changes in the CPI, the BLS quietly stepped forward and began changing the system, anyway, early in the Clinton Administration.
Up until the Boskin/Greenspan agendum surfaced, the CPI was measured using the costs of a fixed basket of goods, a fairly simple and straightforward concept. The identical basket of goods would be priced at prevailing market costs for each period, and the period-to-period change in the cost of that market basket represented the rate of inflation in terms of maintaining a constant standard of living.
The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.
The Boskin/Greenspan concept violated the intent and common usage of the inflation index. The CPI was considered sacrosanct within the Department of Labor, given the number of contractual relationships that were anchored to it. The CPI was one number that never was to be revised, given its widespread usage.
Shortly after Clinton took control of the White House, however, attitudes changed. The BLS initially did not institute a new CPI measurement using a variable-basket of goods that allowed substitution of hamburger for steak, but rather tried to approximate the effect by changing the weighting of goods in the CPI fixed basket. Over a period of several years, straight arithmetic weighting of the CPI components was shifted to a geometric weighting. The Boskin/Greenspan benefit of a geometric weighting was that it automatically gave a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price."
http://www.shadowstats.com/article/consumer_price_index
"Lies, damned lies, and statistics--" Mark Twain.
Looks like our corporate government has us right where they want us, impoverished. Next comes no Healthcare, Education or Retirement.
It is time that we the people take America for the people. America has never been an egalitarian culture but gains were made for the middle classes between 1930s and the 1960s. Raygun turned the tied and we are pretty close to where we were to begin with. For the time being we do have some unemployment insurance, social security retirement, and medicare/medicaid. Pre 1930s none of these programs existed. If we did not have any of these programs in place now, they could not possibly call what Main Street is going through a recession, they would have to refer to it as a depression.
Before Obama leaves office, it is likely that we will see the privatization of these programs and the real onset of Main Street depression.
Will it be the end of America as an economic engine for the world or will it provoke the awakening of we the people? Time will tell.
"What if we've reached a new low in unchecked capitalist greed that will perpetually drive up the unemployment rate as long as companies can keep extracting a profit?"
If? IF? Excuse me, but that is the entire POINT of unregulated capitalism in its natural form. Maximize profits, minimize expenses. You don't need to be an economist to see this. And here in Amereicha (and elsewhere), as the regulations and laws that restrain unregulated capitalism are shredded, this is precisely what we are seeing - the natural evolutionary outcome of capitalism in its raw, disgusting, greedy form. High unemployment is beautiful to the plutocracy for many reasons, if they can still make massive profits: huge reduction in expenses, huge increases in profits, huge increases in executive salaries, huge increases in stock price, reduced wages for remaining non-executive positions since all those millions of unemployed are so desperate they will take any job at any wage, thus allowing the corporations to get an even tighter stranglehold on the government by using their increased profits to bribe yet more government officials to do their bidding and pass even more deregulation and corporate-friendly legislation. And round and round it goes.
End-result: banana republic U.S.A. with 1% uber-rich controlling all, 99% controlling nothing and starving. Precisely what the plutocracy views as the ultimate goal.
All jobs are created by government. How many cars would there be if there were no roads? How many airplanes would there be if there were no airports? What would be the state of professional sports today, if there were no government support for the building of stadiums, sports arenas, parks, or playgrounds? How many sports figures never went to any public school and never played against someone who had gone to a public school? If they went to any school at all did the use a road or sidewalk? Who developed the internet? If you work at home, were the materials that built you house transported on roads? Sorry, I don't see any rugged individuals or self-laid eggs who made it without the infrastructure created by governments.
The entire "structure" of capitalism is a myth. Free enterprise? Who paid for the infrastructure? All of us did and we have a right to demand something from those who use it to make a profit. A so called invisable hand didn't build anything. Our hands and the hands of those before us did. The decision to make the infrastructure was made by a government made up of people just like us.
I think we lose half the battle when we "buy" into the false idea that capitalism is anything other than a misconception.
Sorry Demonstorm, my words are not a response to what you wrote. I was just looking for a place to park my thoughts and this was the best place I found today. Thanks.
The starving 99% will butcher and eat the 1%.
That would be nice. Unfortunately, that 1% also has the North American Division of the U.S. Army on standby and in training for just such an uprising. Not to mention most other law enforcement, private contractors, and any other military/police forces they wish to use to "suppress" any uprising by the disgruntled, starving masses. Remember, the Posse Comitatas Act has been shredded, so U.S. military can now be used against U.S. citizens inside the U.S.
I don't know too many people in Amereicha who would face down the maw of hundreds of tanks and guns in an effort to overthrow the Plutocracy. Of course, when you are starving and desperate, perhaps that will change things. It may just come to that.
The US army will not do their bidding against the people. The 99% will hit the "families" first before dismantling the "plutocracy".
That would have been true back when we had a draft. I'm not as sure that today's professional Army and private security forces would feel the same way ...
When they see that their spouses, children, parents etc will be taken out first, they will back off.
You give an awful lot of credit where I'm not sure it is due. Of course I hope you are right, but in my experience, most soldiers are quite gungho about command structure, following orders, doing what they are told - and with a passion. Not only is this ingrained into them throughout their training - after all, to be a soldier is the ultimate in becoming a brainwashed tool of the State, for the sole purpose of doing the State's bidding - but most of the personality types who want to become soldiers so they can go bomb and fire weapons and kill are already predisposed to being good little "Sir, yes sir!" types anyway.
There are exceptions of course - Bradley Manning anyone? - but by and large I think you will be horribly surprised at just how mindlessly and even willingly the majority of the U.S. soldier-drones do what they are told if it comes down to an order to attack Amereichan civilians.
Also, military families - spouses, parents, children of soldiers - tend to be extremely supportive of the military in general. Except for Cindy Shehan-types, which are rare, most are the ones with flag stickers all over their cars, "Support the troops" bumper-stickers, and fancy themselves uber-patriots. They will be the last ones to rise up against the government. So their soldier-relatives will not have to worry about shooting them.
"...after all, to be a soldier is the ultimate in becoming a brainwashed tool of the State..."
This could be true, SAD, but could be true. I meant to convey that THEIR families should be targeted if need be by any revolutionary forces so as to give them pause to think about their loyalties; family or hyper-fascism.
Why is it necessary to say most Americans aren't Marxists? If they knew what Marxism is, they might well be. They need to look at a real Marxist analysis before they make up their minds. Marxism is the basis for all modern socialism whether democratic or not. Thus it's really the best way. Capitalism is a failure. How much more evidence must pile up before all can see it. I don't want to see a continuation of what is really slavery for all except the super rich and more imperialism and war, as capitalism and imperialism are tied together at the hip like Siamses Twins as Adam Smith said in his defense of classic British capitalism. He very much defended the British Empire as well.
Good stuff- thank you!
so the real question is
what form of socialism or communism do we want.
Having traveled to the former USSR, you do not want Sovietism, which really was a continuation of the Czarism. The Czar owned all the property in Russia, had a secret police and the USSR replaced the ownership of property by the Czar by making the State the owner of all property, Commuczars. Socialism is a much better choice but the USA propaganda MSM does not define communism or socialism but morph the two. The MSM audiences being of the ignorant and illiterate don't know the difference. On behalf of the former USSR, at least the KGB had manners which puts them superior to the TSA goons who are licensed to grope, abuse, steal. The purpose of the TSA is obedience training of adults. The TSA conduct is to strip people of their dignity by public display that the public cannot protect themselves or their family from government abuse. Finally the USG is adopting the failed Soviet model as its own, expecting a different result, which is Einstein's definition of insanity. The Super Congress is a Stalin style Politburo and the USE, United States Empire is modeled after Soviet Failure which by definition is when the cost of the empire, the imperialist colonizer, exceeds the amount exploited from the colonies. A Yiddish proverb applies "choose your enemies well for you will become just like them" and the USA is becoming more and more like the USSR. This takes the mystery out of what is/has and will happen to the USA.