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Corporate Profits Reach Historic High (Again)

Joseph Hines

With fast food and Walmart workers striking for living wages and decent benefits, the corporations they enrich have never fared better. Catherine Rampbell analyzes the 3rd quarter GDP report for 2012.

That's 1.75 trillion in profits for the year as of the third quarter of 2012. That's all well and good, except that those gains haven't been widely shared. What makes these figures perverse is the corresponding plummet in median wages. Interestingly, Rampbell notes that the profits weren't derived from weakened global demand, but from bolstered earnings at home. 

That means it doesn't have to be this way. Catherine Ruetschlin's report, Retail's Hidden Potential, suggests that it is in everyone's, including low-wage employers', best interests to raise wages. The fact that corporate profits have been gleaned from industries that can't be outsourced indicates that demand wouldn't suffer from higher tax rates. There's nowhere for these service and retail jobs to go. 

The divergence between corporate profits and wages recalls Jared Bernstein's memorable inequality dragon:

This trend is a result of misguided and ideological policy decisions. Enthralled by a philosophy of maximizing shareholder value above all else, the modern corporation suppresses labor costs, while generously paying back record profits to investors through stock repurchases rather than reinvesting capital in their workforce.

There is a steep price, both to workers and, by proxy, the American economy writ large, of stagnating pay. Still, instead of demanding greater transfer payments, beltway negotiators scream about high corporate taxes, demanding cuts even as the taxes paid by American companies remain beneath the OECD average. Enterprising scholars call for reducing income taxes on the rich back down to "prosperous" Gilded Age levels, even while actual taxes are remain lower than ever before.

The conventional wisdom needs to be shaken up. As the austerity crisis (or fiscal cliff, fiscal slope, austerity bomb) negotiations heat up, keep the dragon in mind. In policymaking, it should matter more than nearly any other economic trend, as it has a huge impact on the most vulnerable. Unprecedentedly profitable corporations can afford to pay more to support an unprecedentedly weak working class.