Corporate Profits At All Time High, Wages At All Time Low

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The corporate tax rate needs to be dropped. Right…

Corporate profits as a % of GDP…

Wages as a % of GDP…

Who shared the graphs? None other than Mr. Internet Bubble himself, Henry Blodget. He has since reformed and started a reliable site called Business Insider he started a couple years ago. And he’s not a political animal. But these graphs are pretty startling.


  • Tully

    Sure he’s reformed. Tough to get up to too much mischief as a trader after being permanently banned from the industry by the SEC after that stock-fraud plea-bargain and $4 million fine. Not really a credible figurehead to use for that old argument from authority, eh?

  • Tully

    I also note you appear to still be hooked on the belief that the purpose of corporations is to provide employment. It’s actually to make money.

    Two quick points about the (lack of) quality and transparency of the data those charts use: First, measures of “corporate profits” do not include any business that is not publicly traded. That leaves out a massive chunk of the economy, and profits among small businesses are still quite depressed. There is also zero indication in the graph or linked article as to WHICH measure of corporate profits is being used. There are many, and given Blodget as the source I am skeptical that any appropriate one was used.

    Second, the wages chart uses data which excludes anything but actual wages. It does not include the cost of benefits, for example. (I can say this without knowing the specific data source because no general measure of wages includes those things.) A more accurate measure for such a comparison would be the overall cost of corporate labor. And in any case, that’s a long-term trend that has been ongoing since Eisnhower was president, and is largely related to technological development.

  • cranky critter

    Tully beat me to it. Where are our primary sources here? I’m tired of people asking me to take unverifiable math seriously.

  • Jim S

    The graph says the source of the data is the St. Louis Fed. Frankly, I’m getting tired of the argument that it means nothing if benefits aren’t included. Benefits don’t pay the rent, utilities, car payment, car insurance, put food on the table or provide discretionary income that helps fuel the economy. I think the folks who argue that it doesn’t matter or that the argument is meaningless because it’s basis is largely technological would have some credibility if they’d at least admit that it is a problem and that we need to search for a viable solution.

  • cranky critter

    Benefits are part of your compensation, and part of your employer’s cost for you.

    Everyone with a brain knows that increasing benefit costs, primarily for healthcare, have contributed to wage stagnation.To suggest that they ought not to be included in the accounting of what you get for your labor is naive and precious.

    If you want a fair and accurate accounting, then you account for everything you can. It doesn’t have anything to do with politics. Mathematically, it’s simply a matter of facing the truth as it exists.

  • Tully

    The bigger point is that juxtaposing those two graphs isn’t any kind of logical argument at all. It’s simply garden-variety begging-the-question eat-the-rich rabble-rousing demagoguery. Corporations aren’t social agencies. They are not in business to provide jobs. They are in business to make money. Corporations that forget this go bankrupt. If hiring more people will make them more money, they will hire more. If paying better salaries will make them more money, they will pay more. If they can make more money investing in Brazil than in America, product labels are gonna also be in Portugese.

  • Tully

    Oh, and saying the data is from the St. Louis Fed without a specific report citation is like saying “Bob told me” without saying which Bob. There are a good half-dozen measures of corporate profit. In any case, see previous. My quibbles about data sources are an aside to the bigger point about demagoguery.

  • Jim S

    I notice that neither of you cared to address my main point of

    “I think the folks who argue that it doesn’t matter or that the argument is meaningless because it’s basis is largely technological would have some credibility if they’d at least admit that it is a problem and that we need to search for a viable solution.”

    Are you actually so deeply committed to a belief in the magic of the market that you believe that a human cost to our existing system is meaningless?

  • Tully

    When you make a coherent and logical point, it might get addressed. Vague ramblings about social justice and your feelings ain’t it, and do nothing to refute the credibility of already-known objective factors, or the fact that the two things are connected in the post only by implication that blatantly assumes a whole lot of undemonstrated and unstated things. Which is, BTW, damn near the definition of the operating mechanism of rabble-rousing demagoguery.

    Go right ahead and define the problem as you see it, show how and why the problem conjoins the two seperate things, and propose your “solution,” and then there might be something to address. Otherwise you’re just emoting and spouting non sequiturs.

  • Jim S

    Ah, yes. Emotions such as compassion and mercy are meaningless crap that have no place when evaluating society and economy. I thought better of you, Tully, once upon a time. But what I was trying to explain to religious fanatics of the Church of Free Market is that while I recognize that the purpose of a business is solely to make a profit, we are moving largely because of technology and partially because of offshoring into a time where that unrelenting pursuit of greater profit is capable of producing as a side effect ever increasing levels of unemployment, underemployment and income stagnation. What I see are conservatives who refuse to admit this is happening. They still blame the people caught in this trap, assuming with no real evidence that it’s their fault, no exceptions worth mentioning. I do not propose one simple solution, largely because I haven’t met a conservative yet that admits there is a problem and that it will slowly but surely get worse. Milton Friedman once considered the possibility of a Negative Income Tax. Maybe that’s a possibility, but like global warming, so long as ideologues insist that the problem doesn’t exist nothing will ever be done.

  • Tully

    Uh huh. Finished working through those personal issues yet? Actively avoiding rational and detailed examination of the facts and issues while lobbing gratuitous insults and radiating hatred is a poor way to initiate a productive discussion, should you actually be interested in having one.

    Stripping your screed of the obvious oozing hatred of the Evil Other (which as I have noted many times, seems to be everyone who doesn’t agree with you totally, making the vast majority of the American body politic the Evil Other, all of them apparently “conservatives”) what I seem to read there is that you believe that corporatism is producing as a side effect ever increasing levels of unemployment, underemployment and income stagnation. Is that an accurate capsule take of what you’re trying to express, Jim? If so, could you be more specific? To wit, do you mean global corporatism is producing these effects domestically, or worldwide? Or that domestic corporatism is responsible? Or some other combo?

    First things first. If you want a rational discussion about issues involving empirical data, be rational and precise and start with the appropriate data. If you can’t abide the empirical approach, well, there’s no point arguing matters of faith.

  • Jim S

    OK, we’ve been friends for years, Tully, so I’m going to step back from this. If you really think I hate everyone who disagrees with me about anything our friendship is probably beyond salvaging but I think I’ll try anyway. Let’s have a discussion. First, I actually think you’d like the source at the St. Louis fed. It’s a tool called FRED that let’s you create your own graphs and analyze things using the data they provide.

    Next, let’s try some basic logic based on well known facts. If I am wrong, try pointing me to someplace that I can read about something that might prove me wrong.

    First, you are absolutely right about businesses existing to make money. I don’t deny that and I don’t think this is a bad thing, within limits. And when I speak of limits I just mean things like avoiding polluting the environment with toxic chemicals or contributing in other ways to larger problems, not whether or not they hire a certain number of people. Management treats labor like any other cost, seeking to minimize that cost wherever possible. Once again, this isn’t evil or anything, just what they view as necessary. I do think, though it’s not a part of this discussion, that some of them take it too far, actually damaging the business in the long run. For quite a few years now the numbers of employees have been reduced using technology, whether it’s fewer employees needed because of increasingly effective uses of IT or replacement of people by systems from voicemail to industrial robots. In addition, of course, countries that have relatively high labor costs have companies that cut costs by sending jobs to low wage countries that also don’t enforce what labor laws they have or environmental regulations. There are countries where they have some policies in place to try to minimize these cost cutting strategies but the United States isn’t one of them and I’m not actually proposing we become one of them. Some businesses are moving their manufacturing back to the U.S. for a variety of reasons, but when you check them out you find that they’ve taken the approach of using technology to minimize the size of their labor force. Once again, this isn’t a condemnation, just noting what they had to do this. I don’t see any reason for these trends to change for a while yet. Many jobs that still use people could readily be automated yet. China and India are both finding they are not immune to rising labor costs. Businesses there will be looking for ways to reduce that cost, whether by using technology or in their turn seeking nations with lower labor costs. Once again, barring major policy changes on the part of either governments or businesses, these trends have a long way to go before they reach the limits of their effectiveness.

    I don’t know what these limits will be but I do think that these changes in the private sector are occurring faster than our social institutions can adapt to them. There seems to be a disparity between the market value that is placed on labor on the part of many jobs in our society and what it takes to make a living. I don’t seek to lay blame for this on anyone or any institution but I think it’s a problem.

    So, do you consider this to be in any way an accurate assessment of where we are and where we seem to be going? If not, why not? What forces will counteract these trends? There are those who say this is like the technological displacements from previous technological innovations but I believe the flaw in that argument is that with modern technology these new businesses also seek to minimize employment. I take what he says with a grain of salt, but I am currently working with someone who has worked for tech companies in Silicon Valley and in China and he tells of people who seek funds from VCs and are told that they need to include offshoring of jobs in their business plan if they want money.

    Also, if you do think this argument has some merit concerning where business is going, do you consider it a problem? Once again, if not, why not? If you do, what kind of solutions do you consider to be acceptable?

  • Tully

    See, Jim, once you step back from the emotional/political elements dialogue IS possible. I thank you very much for your thoughtful and courteous response.

    Frankly, I’m tired right now so I don’t want to nitpick specifics much at this point, but offhand I really don’t see a lot of disagreement there about what’s going on in general, as far as the facts on the ground with global trends and such. And I am very glad to see that you have given some thought to the offshoring situation, and have not confused it with simple outsourcing as so many do.

    Quick take: Is the overall trend environment a challenge for American labor in general? Of course. Next pertinent question: Can we do anything about it? Not a heck of a lot. At least, not much that will result in a better short-term outcome. On a long-term basis, there may be some cost-effective approaches. Is global corporatism a prime causative factor in declining domestic wages, and if so, to whatn extent? Good question. Solutions? If any? Define the facts on the ground first and the causal relationships between them. Some things are not solvable to preference.

  • Tully

    And yes, I’m quite familiar with FRED. It’s a very good data congregator source to use, but you still need to be careful and check the particulars. If you check the fine print of their corporate profit measures (there’s six of them) you will note that they use data from multiple other agencies. They do not gather their own. Likewise with their multiple wage measures. None of those measures are expressed by FRED as %GDP. That alone set off my data radar when looking at the graphs of the post. While it’s not an INappropriate measurement scaling, it does introduce ALL other economic factors affecting GDP and ΔGDP into the equation. (Assuming of course that the adjustments from dollars to %GDP themselves weren’t diddled in any way. I am willing to assume they weren’t — it would be too blatant a fraud even for Blodget.) This makes cherry-picking out any two measures and claiming direct causal linkage between them extremely problematical. In addition, since both the measures are being expressed using the same scale, there’s no reason for them to be split into two graphs other than to make direct scalar/proportion comparison more difficult … and to keep from drawing attention to the “remainder” of %GDP left after you combine those measures, the other components of national income.

    For an example of what I mean about other factors affecting specific measures and why knowing which measure is being used is important, comparing overall corporate profits after tax with nonfinancial sector business corporate profits after tax, it becomes readily apparent that the financial sector is a HUGE and growing part of the profit picture over the last decade, and continues to be. This despite flat employment in the financial industry. Why? Partial Ans: The bailouts. A huge chunk of our recently increased national debt was the transfer of bad debt off of the private financial sector’s books and onto the public debt books. Another partial answer: Favorable tax treatment for financial corporations versus nonfinancial ones.

    Whether or not we agree on the wisdom of the bailouts, the effect of them on financial corporate profits is obvious in the measures as an objective fact and it greatly distorts the picture when trying to assess overall corporate activity against wage activity. The big banks made out fine from the bailouts, and we the taxpayers get to pick up that tab. But the rest of the corporate world didn’t do nearly so well.

    This is exactly what I meant when I said that which measures are being used makes a lot of difference. If you wish to take that pocket differential analysis of just the one graph as indicating we should be pissed at the financial sector for robbing us all via the federal government to stay healthy themselves, go right ahead. You’ll have plenty of company, in just about all segments of the electorate, myself included. Indeed, it’s one of (if not THE) only things groups as diverse as OWS and the Tea Party agree on, even if their preferred “solutions” are wide apart.

    Yet Justin’s implied “solution” is to tax ALL corporations more. Not just the financial sector that got the goodies, which already receives favorable tax treatment and has already gotten massive handouts on top of that. And somehow I suspect that Congress, BOTH sides of the aisle, would find some way to mitigate any such hit on what is demonstrably a favored sector in their eyes.

    That’s just a start on what I see wrong with the comparison offered in the post. I’ll hit the wages part later. The basic structure still comes down to: Is this a problem for American workers? If so, is there anything that can be done about it that produces a net/net “win” in absolute terms of worker welfare? That latter is important. By measuring in %GDP, you can show a “win” simply by increasing the %wages share. But if GDP overall shrinks at the same time, that may be a real painful “win” that in absolute terms is a real loss.

  • Jim S

    I’d like to see corporate taxes stay where they are with lots of loopholes being wiped out. If enough of them are eliminated I wouldn’t argue with the rate dropping but we need more revenue so it shouldn’t be revenue neutral. The financial sector needs a lot more work. A modern version of Glass-Steagal needs to be instituted, for one thing. Also the carried interest tax rate has got to go. No segment of the system can be so opaque and immune to regulation as to run out of control as the CDS system was allowed to do.

    When it comes to the workers, I’d just like to quit hearing the completely bogus claim that “a rising tide lifts all boats”. No, it doesn’t. This is not some law of nature. It’s easy for the money to flow to the top, which is what’s been happening for years now. If there is some way to increase wages a reasonable increase will tend to help businesses as it would increase demand for products. Another way would be to reduce the costs of necessary items such as housing, transportation and food. The market as it currently exists won’t do it because the rate of return on that kind of investment just wouldn’t be great enough to interest our current private sector.

  • mdgeorge

    Hey guys, thanks for putting in the effort to turn this into a respectful and factful discussion and for seeking common ground and illuminating genuine disagreements without invective. This is why I keep coming back to the donk – it’s hard to find actual conversations between people who disagree on policy these days.

  • Tully

    Jim, they’re you’re getting away from the facts-on-the-ground part and heading into policy. And we’re going to disagree some on policy. EX: I don’t consider maximizing government revenue as a necessarily desirable goal, as compared to maximizing the long-term welfare of the people, consonant with freedom in general. And the two are most assuredly not the same thing, or Cuba would actually BE a paradise. As would China. They’ve maximized their government revenue quite efficiently.

    Pertaining to the profits graph, the first point I was getting at is that non-fin profits are actually not doing all that well. When I looked at nonfinancial profits and compared them to historical figures over time what was obvious was the extreme volatility of the last couple of decades despite moderate inflation, and how poorly they fared against financial sector profits. Take the dot-com boom of the 90’s. Nonfin profits began dropping like a rock in ’96, before the height of the boom and long before the bust. But fin-sector profits kept on, and didn’t drop that much during the bust. Lumping them together to rail at “corporations” is, well, bigotry of a sort, assigning the blame due the specific to the general.

    A second point I only hit obliquely is that using %GDP as a guage has very real drawbacks. For example, the distortions in trend produced by fluctuations in GDP variability. Blodget tortured his data through selective presentation to show what he wanted to show; a neutral observer would find the choices odd, to be kind.

    Anyway, I think you can safely take away from all that the fact that the financial sector seems to be making a whole lot more than it deserves, regardless of your political inclinations. Unless you’re in Congress or banking, in which case…

  • Jim S

    Well, Tully, we agree 100% with your last paragraph.

    But how would you feel about a transaction tax on the financial sector? I think it’s the only way we might slow down the potentially extremely dangerous area of purely computerized algorithm based trading. Depending on the data that’s crept up to as much as 70% of transactions. I’d like to see the money used to cover the cost of regulating the twits, myself.

  • Tully

    I think I’d prefer we did to our rogue bankers and pols what Iceland did to theirs — prosecute them, jail them, and take their ill-gotten gains back. Of course that might involve locking up a significant number of current and former Congresscritters of both parties, but hey, ya gotta start somewhere. Like nailing dead coyotes to the fenceposts, it could be a somewhat effective warning to the other coyotes.

  • Jim S

    Well, that’s a pretty good idea too. The reason for my previous suggestion is that I think there are systems being created that are so complex and opaque that the people creating them have no clue what the consequences will be. Look at the recent multi-billion dollar loss at JP Morgan as an example. I consider the massive switch to automated trades based purely on algorithms analyzing the flow of the markets and paying no attention to the fundamentals of the companies involved to be another one of those systems.

  • Tully

    The advances in automated trading sure do contribute to volaitility, and provide massive opportunity for gaming the system for private gain on the part of the market traders. I have no automatic ideological prefderence for how to retard the system enough to minimize that while not impeding system functionality. A transactions tax might be one approach, as it would certainly cut down on the profitability and profligation of automated churning for those mini-profits (which really add up, they do). Another might be simple mandatory time delays in execution. Even a few seconds could make a lot of difference in smoothing that out.

    Sorry I haven’t been able to revisit this nearly as quickly as I would like. Between my usual work, some house issues (AC dying in 107 heat, among other things) and my ongoing efforts to keep the far right whittled down as far as possible in the local primaries, it’s been busy. I’m unlikely to have the time to really do a good writeup on the wages graph and the problems with it and the wage trend shown until after the primaries.

  • Angela

    Just a couple of points. Corporations, small businesses, who offer health insurance are recovering more of that cost from the employee. So, not only does John Doe make $10.00/hour, but he’s paying about $200-$300 per month for family health insurance benefits he gets from his employer.

    My other point, well I guess its not a point but more of an observation. Those flex accounts that companies offer their employees, you know, those accounts that you have to use up before the end of the year or you lose your money. Guess who gets to keep that money? Further, some companies change their payroll cycle so that the last payroll ends at the end of December. Money is taken out of your last payroll check of the year for a flex account, there’s no time to spend it before 12/31, so you lose it, that’s right, you lose it to the company. They get to keep it.