WHY THE ECONOMY SUCKS: Because American Companies And Their Owners Are Greedier Now Than At Any Time In History

Recessions and recoveries
Recessions and recoveries

Federal Reserve, Sam Ro

The U.S. recovery from the Great Recession is still one of the worst recoveries in history (see red line at right).

Why is the recovery so slow and weak?

One of the main reasons is that average American consumers, who account for the vast majority of the spending in the economy, are still strapped.

Five years after the recovery began, unemployment remains high. And the Americans who are lucky enough to be working are getting paid less as a percent of the economy than they ever have in history.

Meanwhile, America's corporations and their owners have never had it better. Corporate profits just hit another all-time high, both in absolute dollars and as a percent of the economy. And U.S. stocks just hit yet another record.

Many people seem confused by this juxtaposition. If corporations and shareholders are making such gargantuan piles of money, why is the economy so crappy?

The answer is that one company's employees are other company's customers. Americans save almost nothing, so every dollar your employees earn in wages gets spent on other companies' products and services (including, in some cases, yours). The less American companies pay their workers, the less American consumers have to spend. And the less American consumers have to spend, the worse the economy is.

This isn't a complex concept. We're all in this together.

There's also no "law of capitalism" that says that companies have to pay their employees as little as possible or "maximize profits" to please their owners. That's just a story that the owners made up to justify taking as much of the company's wealth as possible for themselves.

And the longer American corporations and shareholders insist on taking an ever-greater share of the country's wealth for themselves, instead of sharing it with the people who create it (employees), the longer our economy will suffer.

Let's go to the charts ...

1) Corporate profit margins just hit another all-time high. Companies are making more per dollar of sales than they ever have before. (Some people are still blaming economic weakness on "too much regulation" and "too many taxes." That's a bunch of crap. Maybe little companies are getting smothered by regulation and taxes, but big ones certainly aren't. What they're suffering from is a myopic obsession with short-term profits at the expense of long-term value creation.)

profits as a percent of GDP
profits as a percent of GDP

Business Insider, St. Louis Fed

After-tax profits as a percent of GDP.

2) Wages as a percent of the economy just hit another all-time low. Why are corporate profits so high? One reason is that companies are paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" represent spending power for consumers. And consumer spending is "revenue" for other companies. So the profit obsession is actually starving the rest of the economy of revenue growth.

wages as percent of GDP
wages as percent of GDP

Business Insider, St. Louis Fed

Wages and salaries as a percent of GDP.

In short, the main reason our economy is still weak is that our obsession with "maximizing profits" is creating a country of a few million overlords and 300+ million serfs.

Don't believe it?

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