David F. Ruccio — Inequality and immiseration

"Immiseration" has a nice quality to it and is less emotionally loaded than "exploitation," which is now associated with "Marxism" in the pejorative sense in capitalist countries like the US.

It’s clear that, for decades now, American workers have been falling further and further behind. And there’s simply no justification for this sorry state of affairs—nothing that can rationalize or excuse the growing gap between the majority of people who work for a living and the tiny group at the top.

But that doesn’t stop mainstream economists from trying...

Are mainstream economists capitalist shills or are they just clueless about reality? Or maybe both.

American workers are getting relatively less of what they produce, which means more is available to distribute to those at the top of the distribution of income.

That’s what mainstream economists can’t or won’t understand: that workers may be worse off even as their wages and incomes rise. That problem flies in the face of every attempt to celebrate the existing order by claiming “just deserts.”

There’s nothing just about the relative immiseration and growing inequality faced by American workers. And nothing that can’t be changed by imagining and creating a radically different set of economic institutions.

Economists operate in terms of the institutional status quo and those stepping out of line are marginalized a "heterodox," or "Marxist." The economics department at Notre Dame, where David Ruccio taught for many years, was recently reorganized to diminish if not entirely excluded heterodox teaching. This is also an institutional problem and it is closely connected with the larger institutional issues in which contemporary capitalism is embedded and imposed on workers (labor) and the environment (land).

The economics profession needs to be address these issues to remain credible.

 

Occasional Links & Commentary
Inequality and immiseration
David F. Ruccio | Professor of Economics, University of Notre Dame

Mike Whitney — A Warning From the B.I.S.: the Calm Before the Storm?

But the real problem with the BIS report is not that it refuses to assign blame for the current condition of the markets and the economy, but that it deliberately misleads its readers about the facts. While it’s true that China is facing slower growth, oil prices are plunging, emerging markets have been battered by capital flight, and yields on junk bonds are relentlessly rising, it’s also true that central bank policy is not primarily designed to address these problems, but to ensure the continued profitability of its main constituents, the big banks and mega-corporations. Keep in mind, the global economy has been sputtering for the last 6 years, but the BIS has only expressed alarm just recently. Why? What’s changed?

What’s changed is profits are down, and when profits are down, Wall Street and its corporate allies lean on the central banks to work the levers to improve conditions.…

Get it? When the profitability of the world’s biggest corporations are at stake, the central banks will move heaven and earth to lend a hand.…

Counterpunch
A Warning From the B.I.S.: the Calm Before the Storm?

Mike Whitney

Even the "owners" are getting ripped off

The plunder of wealth by the oligarchs and elites has reached levels where even the "owners" of enterprises are being ripped off.

Remember George W. Bush and the "ownership" society? That was a euphemism for, "We're going to cut your wages and salaries, make jobs hard to get and fast-track the flow of wealth up to the top. So if you want a piece of the pie, you'd better become an owner, like, own stocks or assets or something. Own a business."

So that's what most people did because they had no choice. Jobs became scarce so they either had to take a risk and start a business (most fail) or, they were forced to scrimp and save and add, monthly, to their 401k's and other retirement vehicles that mostly invested in stocks. They became "owners."

This directive continues on today under Obama, so don't think that he is not part of this scheme. He is.

I'll leave aside for a moment that the banksters and other Wall Street "geniuses" nearly killed everybody's savings with their wild casino games (and many people still haven't recovered), which in the end we had to pay for with higher taxes and more cuts in spending (taxes), leaving us profoundly ripped off.

But some of us still had our stocks, either held directly or through those retirement plans and we were happy and placated, because stocks came back and dividends grew--not by much--but they grew and we felt as if that ownership society thing was finally paying off like they told us it would.

Oh really?

Well, take a look at these two graphs. One is corporate profits as a percentage of GDP and the other is dividends as a percent of personal income.

Corporate profits as a percent of GDP

 Dividends as a percent of Personal Income

As you can see, profits are at an all-time high as a percent of GDP, whereas dividends are not even though profits and stock prices are.

So what's happening here?

The only explanation is that the executives running these enterprises (who are, in 99% of the cases NOT the real owners) are taking more and more for themselves and giving us--the real owners--less. In fact, it almost looks like, if dividends rise too fast, as they did coming out of the Great Recession, they will deliberately slow the pace of  wealth sharing because they need to take even more for themselves.

And you wonder why stock analysts are now saying valuations are high? BECAUSE PROFITS ARE FLOWING INTO THESE MOTHERFUCKERS' POCKETS. THAT'S WHY!

This is once again a blatant screw job by elites and oligarchs who are really nothing more than a bunch of corrupt, scumbag mafia and they have taken control of our lawmakers our government and our lives. 

We really need to take back control of what is rightfully ours. This shit's gotta end.

Bill McBride — Wall Street and A Dirty Little Secret

Confirming Kalecki's Political Aspects of Full Employment.

Calculated Risk
Wall Street and A Dirty Little Secret
Bill McBride

Jeff Cox — Here's the one trend to watch in earnings season

The first-quarter earnings season looks to offer something the market hasn't seen in years. Subsequent quarters likely will have to keep up or it could be an ugly year for corporate America.

Total sales could top bottom-line profits, a turnaround that comes after corporations had spent quarter after quarter slashing costs through layoffs and other forms of austerity. At the same time, revenue lagged amid weak demand and a general lack of confidence.

So in some respects this could be what the market has been waiting for since the financial crisis and the accompanying recession—that point where consumers are willing to take the handoff and generate growth....

Corporations have utilized the Fed's zero-interest-rate policy to run up huge levels of cheap debt, which they then used to buy back shares of their own stock. More than $1 trillion of buybacks have reduced share counts and thus boosted earnings-per-share levels to record highs.

The question now is whether companies can begin to drive earnings organically once the Fed ends QE, which has sent the central bank's balance sheet to nearly $4.3 trillion.

If revenue doesn't grow, "the market will say these valuations are more and more based on QE," Krosby said. "The market is trying to find that equilibrium: What is fundamentals and what is QE? Top-line growth is really key. It's so important because it feeds into a spectrum of analysis that goes beyond just the typical company."

NetNet
Here's the one trend to watch in earnings season
Jeff Cox

Is the American consumer reviving?

Marshall Auerback — Why Are US Corporations Borrowing So Much If Profits Are At A Record Percentage Of GDP?

More cooking the books?

Macrobits
Why Are US Corporations Borrowing So Much If Profits Are At A Record Percentage Of GDP?
Marshall Auerback

Ramanan comments. Profits And Borrowing

Marshall Auerback — The Profits’ Conundrum

[Given the sectoral balances model] ... consider the US deficit and explain how on earth we can still have profits as a record percentage of GDP. There is no way that we can have had a fall in the fiscal deficit to GDP ratio from ten percent to three percent (we are in the middle of fiscal yr 2014 remember) without some kind of significant decline in the profit share of GDP.

But NIPA says there is no such fall. All the people who use this sectoral balance analysis keep saying that the profit decline is coming which of course is nonsense. If it is to be it is here and now; we are dealing with an identity. This cannot be ignored, but it is by virtually every single Wall Street analyst.

This does pose the real possibility that we have a massive overstatement of profits. The economist, Andrew Smithers has argued for this (most recently in last Saturday’s Financial Times). And it’s not an argument that is restricted to the Left. Former Reagan OMB Director, David Stockman has argued the same though less analytically than Andrew. Both analyses point to misinformation on profits is a really serious problem for policy and the Fed is totally in the dark.

Macrobits

The Profits’ Conundrum
Marshall Auerback

Charity by the rich and large corporations is pure vanity or public relations. That's it.

I am not against charity. I think when it comes to charity most regular people have good intentions. But when I see charity turn into star-studded gala events that are reported as the hottest “ticket” in town, like the annual Robin Hood Foundation Ball, then I think it’s all one big vanity show.

It’s the elite wanting cleanse their consciences in a very ostentatious and very phony display of “compassion” for the less fortunate, even though I am sure that 99.9% of the attendees, if you asked them, would be pro-austerity, pro-entitlement reform, pro-deregulation, union bashing, anti-minimum wage ideologues.

In fact, I know it.

I’ve read statements by Paul Tudor Jones, the billionaire hedge fund trader who is also the founder of the Robin Hood Foundation. Here's one of his quotes on America's debt:

"We borrowed against the future, and soon we will have to pay."

Or what about another billionaire hedge fund guy, Stanley Druckenmiller, who is also very much a part of the charity elite and a big contributor to the Robin Hood Foundation. He's been going around screaming that we have an "entitlement problem."

These plutocrats may contribute to charity, but their overriding ideology is the usual out of paradigm stuff that is so much a part of the austerity push, which is literally impoverishing people.

So it’s really a very self centered vanity thing that they're doing. Yes, they’re raising money for the poor and the underprivileged, which is nice; however, it is their beliefs and more importantly, their inordinate influence on policy as a result of their money and status that keep the poor and underprivileged, well, poor and underprivileged. It’s almost like they want the downtrodden to stay down just so they can have their galas showing everyone how wonderful and generous they are.

The other type of charity that I am against, which is just as disingenuous and self-serving is corporate charity. For me, the best corporate charity you can have is just for corporations to pay their workers well. That’s all the “charity” they need; simply a decent paycheck, a living wage. I’m not talking about top executives either, who are routinely showered with lavish paychecks, but about all the workers right down to the guy stocking the shelves or, sweeping the restrooms.

Low wages have become a corporate ethos. It’s one thing to say, “That’s the only way we can make money,” which is what Wal-Mart founder, Sam Walton famously said:

"I pay low wages. I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment." -Sam Walton

However, it's another thing when corporate profits go up, up and up, relentlessly, as they have been, while worker pay has been going the other direction: down, down, down. It’s not even as if worker pay just stayed steady, it’s been falling. Look at the chart below.

Corporate profits vs labor share

That is corporate profits against the share that labor gets. This means that all the gains in productivity have gone to firms and none of that has gone to workers. That means all the money has gone to the firms and nothing to the workers. In fact, workers have had their pay reduced.

A system like this can only exist where there is crushing, vice-grip control over economic policies affecting taxation, labor, income, trade, investment, etc. It's literally an industrial dictatorship. That's exactly what we have. It benefits large corporations and the plutocrats that control them. Nobody else.

So feel free to scoff at their phony and vane displays of charity.

David Beckworth — A Paradox of Flexibility or Central Bank Incompetence?

Of course, Professor Beckworth, being an obedient neoliberal, doesn't meet the Keynesian objection concerning where the effective demand is going to come from either to purchase increasing supply or to send a signal to suppliers to produce more, and he doesn't give any indication that he is even familiar with the Keynesian argument, not realizing that New Keynesians are not actual Keynesians at all, but neoclassical economists at bottom, just as Samuelson was.

Beckworth is just "monetary policy, monetary policy, monetary policy." How is that monetary policy working for you these days? Oh right, the Fed is not targeting NGDP.

Market monetarists like Beckworth don't understand money, the relevance of accounting and finance to economics, or stock-flow consistency macro modeling. Have they even perused Godley and Lavoie, for example?

The kicker, however, is that real wages have been falling over the last couple of years, not rising. Oh right, they are not falling fast enough. I see. How about wage stagnation over the last thirty years and an inverse relationship between labor share and profit share. Oh right, not enough, even though inequality of income and wealth and the Gini coefficient of the US the highest of developed countries.

Oh, and did I mention that corporate profits have been rising since the Great Recession? Yeah, those corporations are really being squeezed by wage rigidity, it seems. NOT.

What neoclassical economists dont' see is that there is a tradeoff between wage flexibility and unemployment. Employers generally use both. They cull their work force and also do their best to reduce wages to control costs. But their best strategy is let the least productive workers go and continue to pay productive workers well so that they don't lose them to higher competitive bids, so that their workforce decline competitively.

Economists should be required to work in business for a few years before going to grad school to learn how business actually operates. Sorry, guys, it's more nuanced than you think.

Did I forget anything? After all I am not an economist.

Macro and Other Musings
A Paradox of Flexibility or Central Bank Incompetence?

David Beckworth | Assistant Professor of Economics at Texas State University in San Marcos, Texas

Outlook may be worsening...

Just  got this email from Warren Mosler who just got it from J.J. Lando over at Nomura. It corroborates a lot of the fiscal work that Matt Franko has been doing here on this blog.

Some very interesting trends/divergences emerging: 1. Staples/Tech or cyclicals/defensives or low vol or correlations all falling completely off a cliff in spectacular fashion. 2. Forward P/Es in Japan vs in China and Korea massively diverging (fx-driven earnings drain, effectively, but only affects fwd PE this much if street is dramatically dramatically underestimating the fx impact on earnings) 3. You all know, Apple, GE, IBM vs S&P, etc. Meanwhile consider the backdrop: GE was a 'shoot the messenger' situation where their own 'global growth market share' looks fine but they say global leading indicators are poor so the market takes them down 5% and everyone else untouched Weak USD, Strong commodities, China, and MOST IMPORTANTLY A MASSIVE US DEFICIT were fundamental drivers for US Equity performance for a long time. All are now pushing the opposite way. I am seeing ppl forecasting just 400+b for deficit within 2 yrs. Ppl still had 1T for this year a few months ago. It's a STAGGERING, stealth development. It's bad for stocks even if it's from good growth. People thought the Fed was pumping stocks with 'liquidity.' There might have been some weak-USD effects but the FEDERAL BUDGET DEFICIT was the big driver. **Much of the deficit was winding up as corporate earnings the past few years rather than household income** Thus median incomes were flat, overall were up small, overall growth was small, and equity free cash flow and earnings growth has been chugging along at 7,8,9%. Where do you think that came from? Not from the Fed. That was blogoshpere nonsense. IT CAME FROM THE DEFICIT.  The biggest issue of course, is that free cash flow yields still make equities look dramatically cheap to bond-like alternatives... but they also are much more sensitive (over-sensitive) to turning points in things. If only as a punt on reactionary-ism stuff, I don't like them here. Short for a trade. G'LUCK!

David Ruccio — 3 decades of growing productivity and stagnant wages (2 graphs)

“Some people think it’s a law that when productivity goes up, everybody benefits,” says Erik Brynjolfsson, an economics professor at the Massachusetts Institute of Technology. “There is no economic law that says technological progress has to benefit everybody or even most people. It’s possible that productivity can go up and the economic pie gets bigger, but the majority of people don’t share in that gain.”

Real-World Economics Review Blog
3 decades of growing productivity and stagnant wages (2 graphs)
David Ruccio | Professor of Economics at the University of Notre Dame

Derek Thompson — The Dirty Secret of Debt-Hating CEOs: They Need Big Deficits to Live

The big red gash you see at the far right? That's the contribution of government borrowing to corporate profit margins since the recession hit.

The Atlantic
The Dirty Secret of Debt-Hating CEOs: They Need Big Deficits to Live
Derek Thompson | Senior Editor, Business
(h/t Stephen Ewald via Twitter)

Obama...the "anti-business" president. Ha!!!!!

Let me state this up front, I'm no big fan of Obama, but this incessant claim by Conservatives that he is anti business is laughable.

NO PRESIDENT IN POST WWII HISTORY HAS PRESIDED OVER A FASTER INCREASE IN CORPORATE PROFITS THAN OBAMA. NONE!!

The Arthurian — Notes on Labor

...until unemployment falls closer to more normal levels, corporate margins do not appear vulnerable from a spike in unit labor costs.

So if your plan is to solve the debt problem by creating some inflation, how are you gonna get wages to go up along with prices? It's the key question. Because if wages don't go up along with prices, then rising prices will just make things worse. 

It's not rising prices that make it easier for us to pay down debt. It's rising incomes.

Read it at The New Arthurian Economics
Notes on Labor
by The Arthurian

Margins, profits and wages

Read it at Think Progress
Corporate Margins And Profits Are Increasing, But Workers’ Wages Aren’t
By Pat Garofalo

Is there a fallacy of composition operative in firms' decision making that is kneecapping effective demand due to lagging worker incomes and falling real wages in contrast to increases corporate earnings, or can owners' consumption offset this? If it can, is this desirable for society, or even politically sustainable?

Exxon vs the Fed

Who's more profitable, Exxon or the Fed?

Results are in...

Final score:

Exxon $252 bln
The Fed $321 bln

It's the Fed by a knockout!

And all that profit without having to drill a single hole or refine a single gallon of gasoline. Plus, no messy spills to contend with. Just clean, neat Treasuries. A whole lotta them. About $2.6 trillion worth to be exact.

But where'd that profit go? Nowhere. To the Treasury and out of the private sector. Wow! What a stimulus!!! Let's have QE3, and 4 and 5 and 6 for that matter!!