Tag Archives: corporate profits

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Still Not Spreading the Wealth Around

Obama has always claimed to want to spread the wealth around. Yet, as I stressed this June (and in my first ever blog post way back in July 2011!) that’s the exact opposite of what he has achieved.

And it’s getting worse, not better.

Wages-as-a-proportion-of-GDP just hit another all-time low:

WASCUR:GDP

And corporate-profits-as-a-proportion-of-GDP just hit another all-time high:

cp:gdp

Obama might throw a lot of rhetoric about fighting for the middle class.

But the reality has been the opposite. America today is all about the enrichment of big banks, financial corporations and the military-industrial complex, while the working class has rotted.

The truth of Obama’s policies (and successive administrations prior to Obama) is more concentrated wealth within the financial elites and Wall Street. Banks get bailed out. Campaign donors get stimulus money. And the middle class and future generations pay for it in taxation and the Cantillon Effect.

The Obama reinflation is a rotten bubble built on rotten foundations. Trying to reinflate the economy from a starting debt ratio of over 350% of GDP through crony corporatism and helicopter drops to the rich is an absurd notion that is doomed to abject failure.

And the growing gap between the rich and the poor is steadily beginning to resemble neofeudalism.

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The Unstimulus

If your predictions are wildly out-of-whack with reality, you need to change your approach.

Here’s a 2009 Obama administration graph authored by Jared Bernstein and Christy Romer showing their calculations for future unemployment levels with and without the Obama stimulus, updated by James Pethikoukis to show the actual figures:

These predictions have been an unmitigated disaster. Not only did the real figures not match up to the advertised ones, but they are also much worse than the baseline expectations. Romer and Bernstein appear to have both severely under-estimated the depth of the crisis, and over-estimated the effectiveness of the stimulus package.

The stimulus is a large and complex piece of legislation, and it sent lots of money to lots of different places. Money went both to projects like building roads and bridges, as well as to projects like Solyndra, and to many other kinds of projects. Here’s a rough breakdown (a deeper breakdown is available here):

To get the full picture, we need to look at the broad outcomes. So, who benefited in the wake of the stimulus?

Wages and salaries as a percentage-of-GDP in blue, corporate profits after tax as a percentage-of-GDP in red:

Obama might talk about spreading the wealth around, but the aggregate effect of the policies pursued during his administration have squarely benefited large corporations and the financial sector, and not the middle class or small business. Is reinflating financial bubbles and pumping up corporate profits Obama’s idea of recovery? The money isn’t trickling down, and small businesses and the middle class are more in debt than they were before the crisis started. Income inequality is soaring. The financial sector is richer than ever. American infrastructure is still crumbling. Housing starts are still deeply depressed, even as homelessness rises. And of course, employment is still deeply, deeply depressed. The stimulus didn’t get America working again. With a monstrous and broken financial sector still totally failing to provide adequate capital to Main Street, totally broken algorithm-driven markets that have alienated retail investors, and budget deficits that remain persistently high, this should surprise precisely nobody.

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Spreading the Wealth Around

Under Obama, corporate profits have soared to all-time highs:

Rentiers are doing better than ever; rental income has exploded and almost doubled since the recession (bubble-watchers — this is a huge one):


Yet employment still hasn’t recovered:

Income inequality under Obama has grown at a faster-rate than under Bush or Clinton:

All that debt Obama acquired, and all the stimulus did work to redistribute wealth and income — it worked to redistribute wealth and income toward the well-connected crony capitalist groups that funded Obama into office.

Obama can talk all he likes about cutting taxes for the middle class; the data shows who Obama’s redistribution policies have overwhelmingly favoured.

Of course, leftists and statists often end up favouring the super-rich. That’s been the underlying reality of communism — politburos, bureaucrats, technocrats, party members all benefit at the expense of everyone else (in spite of all that proletarian rhetoric).

Inviting the state to carve up national income and redistribute it is an invitation to corruption, and graft. Obama talks an updated version of the old communist rhetoric about redistributing wealth to the working class — he even adopted Stalin’s slogan “forward” — yet just like Stalin the reality of his policies is more wealth for the richest and most well-connected. What a surprise.

He continued and expanded the Bush bailouts of failed companies. He reappointed Ben Bernanke, who has hovered in his helicopter above Wall Street throwing out money to the well-connected rentiers and corporations. And his stimulus package went to his own donors like Solyndra who frittered away the loans he guaranteed.

That’s been the reality of “spreading the wealth around”. When will we wake up?

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Who is Failing the 99%?

With predicaments like this, it’s clear something is going badly wrong.

But what’s worse than wrong?

As Einstein put it:

The definition of insanity is doing the same thing over and over again and expecting different results.

Many commentators, including much of the establishment, are advocating the same old solution: take more productive capital out of the economy in the form of taxes for the government to spend. As I pointed out yesterday, total government spending and unemployment are strongly correlated:

This is empirical evidence that increasing government spending does not necessarily decrease unemployment. But there’s something worse going on here.

While Obama might talk a good game on jobs, his record speaks not of job creation, but of massive tax breaks for corporations.

From the Daily Mail:

General Electric paid no tax at all in America last year and even managed to get a $3.2billion ‘rebate’ from the government.

The utilities giant allocated just 7.4 per cent of its $5.1billion U.S. profits in tax – around a third of what others companies its size are paying.

But through a complex series of measures GE, which is America’s largest company, will not even have to hand that over.

So where are all the jobs that these tax breaks were supposed to create?

Corporate profits have recovered from 2008 under Obama:

So in spite of all his pro-jobs rhetoric, all of that stimulus and all of that quantitative easing just hasn’t sparked a recovery for jobs.

Why?

As I wrote a few weeks ago:

The most annoying thing about the establishment’s ongoing obsession with maintaining the status quo, and supporting and bailing out older and larger companies?

Dinosaurs don’t create jobs.

According to the Economist, research funded by the Kauffman Foundation shows that between 1980 and 2005 all net new private-sector jobs in America were created by companies less than five years old. “Big firms destroy jobs to become more productive. Small firms need people to find opportunities to scale. That is why they create jobs,” says Carl Schramm, the foundation’s president.

And small business is being crowded out of the market by big government and its crony capitalist friends.