Hell has just frozen over. Today I saw an article in the mainstream media that argues exactly what I've been saying for years and should be obvious to every American: there is no longer any link between economic growth, corporate profits, and job growth. The article is entitled Why Economic Growth May No Longer Mean Job Growth:
Economists Deepankar Basu of Amherst and Duncan K. Foley of The New School for Social Research write that "the close relationship between [growth and jobs] that characterized the U.S. economy over the two decades after World War II has been weakening since the mid-1980s." The result has been "jobless recoveries," and "output-less crashes"—employment lagging behind growth during both good times and bad.
Why might this be happening? Basu and Foley point to two major factors.
One is pretty well recognized: globalization and the off-shoring that's come with it. Shipping U.S. jobs abroad naturally lets companies increase their output while creating fewer domestic jobs.
The other has received less attention: the increasing share of the economy made up of the "FIRE" industries, finance, insurance and real estate. Between 1995 and 2009, those sectors accounted for more than one quarter of U.S. GDP growth. But compared to sectors like manufacturing, which has declined steadily over the same period, the FIRE industries don't generate many jobs in relation to their contribution to growth.
And Nancy Folbre adds:
Once upon a time, economic recovery led to expanded employment of the United States population. Not anymore. The percentage of adults employed has declined sharply during the last two recessions and failed to increase much in their aftermath.
As Alan Krueger of Princeton pointed out, the employment-to-population rate remains at about 58 percent, about the same as in December 2009 and far lower than the peak of 65 percent achieved before the 2001 recession.
The unemployment rate does not provide as clear an indicator of employment trends, because it is strongly affected by individuals’ decisions to drop out of the labor force (which includes only those who are working for pay or seeking paid employment).
As Catherine Rampell reported in a recent Economix post, more than 45 percent of those unemployed in January reported they had been looking for jobs for 27 or more weeks. Many other workers in this situation simply give up and stop looking for paid employment – and thus are not counted as unemployed.
Concerns about the sputtering and laggard performance of the Great American Jobs Machine arose well before the Great Recession. In a terrific overview published by the Federal Reserve Bank of New York in 2005, the economists Richard B. Freeman and William M. Rodgers III reviewed several possible explanations.
While they mentioned job losses due to offshoring as one important factor, they emphasized that displacement effects have been difficult to measure. The possible trade-offs between job creation in the United States and in other countries are even more difficult to quantify.
But a recent article by David Wessel of The Wall Street Journal provided startling evidence of the impact of globalization. His analysis of data from the Commerce Department indicates that major multinational corporations cut their employment in the United States by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.
This is a big change from the 1990s, when those corporations added 4.4 million jobs in the United States and 2.7 million abroad.
Among the chief executives willing to go on the record was Jeffrey Immelt of General Electric, who emphasized that his company goes abroad in search of new markets rather than cheap labor. “Today we go to Brazil, we go to China, we go to India, because that’s where the customers are,” said Mr. Immelt, who is also chairman of President Obama’s Council on Jobs and Competitiveness.
But the motives for multinational disinvestment in the United States seem far less important than the consequences. Globalization weakens the link between economic recovery, increased profits and job creation in the United States.
Foreign-owned businesses may locate in the United States, helping compensate for declining investment by American multinationals. But as all businesses become more footloose, they have less incentive to support public spending on education, health, human services or social safety nets, including unemployment insurance.
Unneeded as workers, the unemployed also become superfluous as consumers and burdensome as citizens.
Cutting unemployment benefits (as was just accomplished in Michigan and is well under way in Florida) becomes just another means of cutting losses.
And in other news, bears shit in the woods. I think we all know that all the "growth" in the recent economy has simply been paper shuffling and "wealth management" by the financial wizards, that is, squeezing more profits from workers, buying and selling debt as a "product," and taking advantage of global wage arbitrage. Money and growth are just meaningless numbers created in the vast online gambling game that is now the global economy.
I mean, really, is there anyone besides hardcore Conservative Republicans who believe in the connection between corporate profits and jobs anymore? Corporate profits have continued to set records every year for decades, while Americans' living standards have been falling for decades. Let's take a look at U.S. corporate hiring trends, shall we:
Yep, all of those tax cuts to "create jobs" have created jobs all right -- for Chinese, Indian, Brazilians, etc. I'd inject at this point that tax cuts don't create jobs, demand creates jobs. In any event, it's no wonder there is such a massive divergence between what economists and the elites in corporate boardrooms are saying, and what the rest of us are actually experiencing:
Despite what the gross domestic product report released Thursday shows, nearly a third of Americans believe the country is in a depression, according to a new Gallup poll.
The poll, conducted April 20-23, found that 29 percent of Americans thought the economy was in a depression, and an additional 26 percent thought it was in a recession.
It turns out the people most likely to say the economy is “growing,” and the least likely to say the economy is in a “depression,” are the wealthy. Poor Americans are twice as likely to think the economy is in a depression as the rich are.
That's right, more than half - 55 percent - of Americans believe the economy is still in the dumps, despite "officially" being out of recession. I'm only surprised the number isn't higher. I'm guessing this 55 percent are the people who don't watch cable news or read the newspaper.
If anything, this does not go far enough. Even when jobs are created, it does not look at the quality of those jobs. Even the jobs that are created are shittier and shittier. Simply looking at the amount of jobs does not look at whether those jobs are paying workers what they deserve. This is from the Wall Street Journal (!!!):
From mid-2009 through the end of 2010, output per hour at U.S. nonfarm businesses rose 5.2% as companies found ways to squeeze more from their existing workers. But the lion’s share of that gain went to shareholders in the form of record profits, rather than to workers in the form of raises. Hourly wages, adjusted for inflation, rose only 0.3%, according to the Labor Department. In other words, companies shared only 6% of productivity gains with their workers. That compares to 58% since records began in 1947.
Let's have a look a that chart, shall we?
Interesting how productivity and wage growth diverge right about the time of Morning In America. That's something to keep in mind, since the new propaganda front from the rich is that it is "immoral" for them to pay taxes:
Apparently it's not "immoral" to keep all of the productivity gains provided by the workers who made them rich in the first place. In fact, the median income has actually shrank over the past decade by $5,261!:
Median household fell to $50,303 last year, from $52,163 in 2007. In 1998, median income was $51,295. All these numbers are adjusted for inflation.
In the four decades that the Census Bureau has been tracking household income, there has never before been a full decade in which median income failed to rise. (The previous record was seven years, ending in 1985.) Other Census data suggest that it also never happened between the late 1940s and the late 1960s. So it doesn’t seem to have happened since at least the 1930s.
And the streak probably won’t end in 2009, either. Unemployment has been rising all year, which is a strong sign income will fall.
What’s going on here? It’s a combination of two trends. One, economic growth in the current decade has been slower than in any decade since before World War II. Two, inequality has risen sharply, so much of the bounty from our growth has gone to a relatively small slice of the population.
Meanwhile, CEO pay is up 11% last year alone.
These are facts. I'm sure the people watching FOX and listening to Limbaugh don't ever get to hear any of this, and probably never will. To them, the entire problem is millionaire teachers and mysterious "government regulations" that prevent hiring that they can somehow never specify. Oh, and let's not forget the "enormous tax burdens" that are standing in the way of good jobs for everyone. Time for some more inconvenient facts:
...Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.
But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.
In addition to being complex and uneven, the United States corporate tax code is inefficient and has become a diminishing source of revenue. Corporate taxes accounted for about 9 percent of all federal revenue in 2010. ... “Whether the test is fairness or efficiency, the U.S. system gets really low marks,” said Michelle Hanlon, an M.I.T. professor...
Because some companies are so effective at minimizing taxes, the average works out to far less than the official rate. United States companies pay about a quarter of their profits in federal income taxes, a few percentage points higher than the rate paid by companies in most other major industrial countries, according to a number of studies and tax experts. ...
Let's have a look a the graph:
"Burdensome" taxes must be the reason there are no good-paying jobs, right?:
Compare income taxes received by the federal government from individuals and from corporations (their profits are treated as their income), based on statistics from the Office of Management and the Budget in the White House, and the trend is clear. During the Great Depression, federal income tax receipts from individuals and corporations were roughly equal. During the second world war, income tax receipts from corporations were 50% greater than from individuals. The national crises of depression and war produced successful popular demands for corporations to contribute significant portions of federal tax revenues.
US corporations resented that arrangement, and after the war, they changed it. Corporate profits financed politicians' campaigns and lobbies to make sure that income tax receipts from individuals rose faster than those from corporations and that tax cuts were larger for corporations than for individuals. By the 1980s, individual income taxes regularly yielded four times more than taxes on corporations' profits.
Since the second world war, corporations have shifted much of the federal tax burden from themselves to the public – and especially onto the middle-income members of the public. No wonder a tax "revolt" developed, yet it did not push to stop or reverse that shift. Corporations had focused public anger elsewhere, against government expenditures as "wasteful" and against public employees as inefficient.
Organisations such as Chambers of Commerce and corporations' academic and political allies together shaped the public debate. They did not want it to be about who does and does not pay the taxes. Instead, they steered the "tax revolt" against taxes in general (on businesses and individuals alike). The corporations' efforts saved them far more in reduced taxes than the costs of their political contributions, lobbyists' fees and public relations campaigns
Getting back to our original topic, the article concludes:
If there's no longer as strong a connection between jobs and GDP, it's more likely that the growth those tax cuts produce will come from investments in machinery, or from hiring overseas workers, rather than from domestic job production. And if that's the case, then more direct job creation strategies might be more effective at bring down unemployment.
After all, it's not U.S. economic growth itself that most people are looking for—it's jobs. If one no longer leads as surely as it did to the other, then maybe it's time to re-evaluate what the goal is.
This is especially interesting, considering every single Republican argument to boost job growth is simply more corporate tax cuts. There's nothing like getting a $100,000 tax credit to create a $20,000 a year job that you would have created anyway. Ahhh...free-market capitalism!
As I discussed previously at inordinate length, there will never be enough jobs for people under the current economic arrangement. Wake up and smell the coffee. The elites know this, and that is why they are spending so much more money on police, military, security, jails, etc., all the while telling the rest of us to wait for things to "get back to normal." The "Invisible Hand" will sort it all out, they claim. And I've got some real estate in Florida you may want to take a look at.
So the next time you hear a politician say we need to cut taxes to create jobs, I think you know what finger to greet them with.
P.S. High tax rates on profits actually encourage job growth, since money paid as wages is not taxed. Money invested back in the company is not taxed, either. A super-low tax on profits encourages hoarding and profit-taking rather than job growth and reinvestment.