America's two economies are getting wider apart.
The Big Money economy is booming. According to a new Commerce Department report, third-quarter profits of American businesses rose at an annual record-breaking $1.659 trillion -- besting even the boom year of 2006 (in nominal dollars). Profits have soared for seven consecutive quarters now, matching or beating their fastest pace in history.
Executive pay is linked to profits, so top pay is soaring as well.
Higher profits are also translating into the nice gains in the stock market, which is a boon to everyone with lots of financial assets.
And Wall Street is back. Bonuses on the Street are expected to rise about 5 percent this year, according to a survey by compensation consultants Johnson Associates Inc..
But nothing is trickling down to the Average Worker economy. Job growth is still anemic. At October's rate of only 50,000 new private-sector jobs, unemployment won't get down to pre-recession levels for twenty years. And almost half of October's new jobs were in temporary help.
Meanwhile, the median wage is barely rising, adjusted for inflation. And the value of the major asset of most Americans- - their homes -- continues to drop.
Why are America's two economies going in opposite directions? Two reasons.
First, big profits are coming from overseas sales of goods and services made abroad, not here. The world's fastest-growing markets are China and India, whose inhabitants are eager to buy "American" products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.
Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.
Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.
In other words, American workers are losing even more bargaining power as a sizable chunk of corporate profit goes into software and digital equipment that can do what people used to do -- but more cheaply.
So what is Washington doing about all this?
Making the tax code more progressive so more Americans reap the benefits enjoyed by those at the top? Increasing the bargaining power of American workers? Forcing Wall Street banks to reorganize under bankruptcy mortgage loans that are dragging down the housing market? Expanding early childhood education, hiring more teachers, putting fewer kids into each classroom, and making higher education more affordable -- so more working and middle-class kids can become tomorrow's high-priced "talent"?
No. None of this. In fact, Washington is busily separating the two economies even further.
It's extending the Bush tax cuts -- the lion's share of which go to the very wealthy; reducing the reach and rate of the estate tax; and giving corporations additional tax breaks for investing in software and equipment. Meanwhile, the states are cutting back on preschools, firing teachers, and yanking up tuitions and fees at public universities.
Oh, and yes, Washington is also extending unemployment benefits for the long-term jobless. Which is the least it can do, given that their ranks continue to swell.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Frequently these unemployed were the marginal and the marginalized. So no one cared. Most kind of thought well those people deserve to be unemployed. I hustle, I work hard, you don't have to be in that 5% if you don't want to be.
I think more people are discovering that when they came for the 5% and said they didn't even deserve any benefits at all, I didn't stand up because that wasn't me. And when they came for the teens (51% under the age of 24 do not have a job) I didn't stand up, because they didn't really need the money and that was me. And when they cut the pay of the . . .
It's like what's happened to boating in the Caribbean. It used to be you could sail the islands with impunity - not anymore.
At some point, when the 'locals' begin to resent the differential, as in the Caribbean, and Latin America, you start to see piracy and kidnapping of boaters in places like Honduras, Belize, and even Antigua.
Razor wire and broken glass are the norm for homes of the wealthy in south America and the 3rd world. It won't be long before it's normal here.
People are rooting for the thieves when banks and casinos are robbed. I know I do.
Behind all fortunes THERE ARE CRIMES..... there is no such thing as honest wealth anymore... its all stolen.
AND when THIS former Republican -- lifelong entrepreneur thinks the wealthy are ALL CROOKS.... and I know I'm not alone.... then the sun is setting on the privileged.
Children will be kidnapped... houses burned to the ground... the rich will not go unpunished in the coming years... or months.
It's about time. They deserve everything they are going to get.
And I'm not some hourly wager. I own my own business. But I also know how hard it is to break through to extreme wealth from an independent business. It doesn't happen without government help - or ties to investment banking.
I have to admit that is one of the reasons I'm such an advocate for willingly sharing and not being too greedy. I haven't been greedy and when they come over the fence, I live next door and that means my head is probably gone too . . . I keep saying we can do this easy or we can do this hard ..
It is so obvious, particularly if you are successful that there isn't even a hope unless you break into "the circle of wealth socially" that you will get there. One of my major donors is the black sheep of a dynastic family and I was saying how many people defend the wealthy and talk about how hard they work and he just cracked up . . couldn't stop laughing.
The first step to financial wealth is social capital. It is the most restricted form of capital, flowing largely in closed personal “bonded” networks of similar individuals characterized by having either too many or too few material resources. These isolated networks further reinforce unequal power dynamics & deepens disparities.
But so many hate the poor and love the rich. I don't know. Will they wake from their stockholm syndrome and unite?
Our form of financing and trade are going to ruin us.
This is not the kind of job performance I can reward.
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Not only that . .one who taught at of the University of Chicago . . . Didn't anyone notice that? That he thought that Reagan was the most influential president.
it was really scary is that the HCR is less liberal than what Richard Nixon proposed in 1974 and Obama is being called a socialist for presenting it. He was never a liberal firebrand. ever, ever. ever. That's what everyone liked about him . . . that he was cool and level. You may not have realized it, but that person was always in the room . .the measured, compromising (and I don't mean that in a bad way. He actually believes that governance is compromise clearly no one else does but I think he believes this).
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But that's beside the point. It makes little sense to tax those who can least afford it at the same rate as those who can most afford it. It's no coincidence that the countries with the highest standard of living also have highly progressive taxes and the poorest countries tend to be highly economically stratified. Taxes are only part of the equation but without robust income, no government can establish robust social and physical infrastructures.
END THE FED. We need sound money and rewarding interest rates not Zero, this is insane.
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I say this not because I think we shouldn't end it but because we probably can't. But we probably CAN get it federalized.
They sound like junkies!
Do a little research on what happen in Japan during the 1990s to see just how lagging an increase in employment can be.
I've been asking myself that exact question for the past 8 years, going on 10 now. What will it take to get Americans moving and stop all of this nonsense that we did not authorize??
Misleading! DC is ONLY extending the dates - NOT the benefits! You are helping to mislead the public as to who is beinging 'saved' and who is not Mr. Reich. Shame on you.
It won't take much- they just pooh pooh it, dismiss it out of hand. And because the top few percent of people that are actually engaged in politics are most often wealthy themselves, they don't follow moral arguments that cause personal loss at tax time.
Cokie Roberts was on Meet the Nation (whatever) and when the Noble laureate economist Krugman suggested that demand was the problem, she glibly replied 'make all the rich people buy something'. Its the pundit equivalent of 'let them eat cake'. From a respected pundit, its a stark revelation. I'm guessing her income, well into the affected tax brackets, has affected her journalism.
And so it goes. Maybe Robert Riech isn't paid enough. Yeah. I'm sure he's not.