Floyd Norris, writing in the New York Times, summarizes key economic trends as follows:
Corporate profits are at their highest level in at least 85 years. Employee compensation is at the lowest level in 65 years.
The Commerce Department last week estimated that corporations earned $2.1 trillion during 2013, and paid $419 billion in corporate taxes. The after-tax profit of $1.7 trillion amounted to 10 percent of gross domestic product during the year, the first full year it has been that high. In 2012, it was 9.7 percent, itself a record….
Before taxes, corporate profits accounted for 12.5 percent of the total economy, tying the previous record that was set in 1942, when World War II pushed up profits for many companies. But in 1942, most of those profits were taxed away. The effective corporate tax rate was nearly 55 percent, in sharp contrast to last year’s figure of under 20 percent.
The Commerce Department also said total wages and salaries last year amounted to $7.1 trillion, or 42.5 percent of the entire economy. That was down from 42.6 percent in 2012 and was lower than in any year previously measured.
Including the cost of employer-paid benefits, like health insurance and pensions, as well as the employer’s share of Social Security and Medicare contributions, the total cost of compensation was $8.9 trillion, or 52.7 percent of G.D.P., down from 53 percent in 2012 and the lowest level since 1948.
Benefits were a steadily rising cost for employers for many decades, but that trend seems to have ended. In 2013, the figure was 10.2 percent, the lowest since 2000.
Norris’s article also includes the following chart which presents after-tax corporate profits, effective corporate tax rates, employee compensation, and changes in the S&P index by presidential term.
Two things are worth highlighting.
First, the steady climb in the ratio of after-tax corporate profits to GDP over the Clinton, Bush, and Obama administrations. The ratio is now at a record high.
Second, the decline in employee compensation as a share of GDP. This ratio has tumbled to a post-Truman low.
These pre-and after-tax profit and compensation trends are no accident. They are the result of economic policies which had as their primary goal the enhancement of corporate profitability. These policies include:
- Corporate tax cuts
- Free Trade Agreements designed to promote the globalization of production and finance
- Financial sector liberalization
- Labor law reforms designed to weaken worker organizing and collective action
- Privatization of government services
- Cuts in and the tightening of eligibility standards for social programs
- Public sector bailouts and subsidization of private sector activities.
Unfortunately, while these policies succeeded brilliantly in achieving their goal, success has come at high social cost. They have worsened living and working conditions for growing numbers of people as well as the overall health of the economy.
The following four charts, published by Doug Henwood on his Left Business Observer blog, offer one window on the weakened state of our economy. The charts show the real movement of GDP, Consumption, Investment, and Government Spending through the end of 2013 relative to their respective long term trends (1970-2007).
Note how things fell off a cliff in the recession. GDP, consumption, and government spending are all about 15% below where they’d be had they continued to grow in line with their long-term trend. (The hysteria over out-of-control government spending looks ludicrous in the light of this graph.) Investment is about 25% below where it “should” be thanks largely to the housing collapse, though it’s staging something of a recovery. The other components have yet to begin closing the gap, because the recovery’s been so weak.
The economy’s weak five year expansion has existed comfortably with record profits (and a growing concentration of income and wealth) because the policies which helped to secure the latter tend, by their nature, to weaken economic fundamentals. Think tax cuts, bailouts, free trade agreements, privatization, and the like.
In short, as long as both political parties prioritize corporate profits, we can expect bipartisan support for current policies and thus a continuation of socially negative trends. There is no way forward for the majority of Americans without a fundamental shift in priority and policies.